How is the Credit Score Calculated

The Credit Score is a numbered score given to the people for each & every credit activity they perform. More the Credit Score, lesser will be the default on the repayments of the credit. The Credit scores are also called FICO Scores, as this concept was created by Fair Issac Corporation.

There are various procedures in calculating the Credit scores & also there are different factors that determine the variation in the credit scores.

• The basic way in which the credit score can be calculated is through a Score calculating software, in which the data from the credit reports are inserted & it gives a number. The major Credit Bureaus do not use the same method & so the credit score given by them can be different than the one manually calculated with the help of the software.
• The Credit score is also dependent on Credit history, which includes the payment history, amount owned, length of the credit history, types of credit used, how much is the latest credit transaction, any late repayments, negative public records & number of accounts paid as agreed. All these factors do affect the credit score of any person.
• The types of credit taken, like installments, revolving accounts, mortgage, etc. also do affect the credit scores. The mould of different credit types usually generates better scores than the reports with the same credit type, for e.g. installments only or credit cards only.

The Credit scores determine the various trends occurring in the amount of interest rates applicable for the repayment if the left over due, and also the new loans or credit that can be taken will be at higher interest rates. So, to avoid this situation, where the repayment becomes more expensive than the actual amount, it is better to pay the credit on time & also, to open as less credit accounts as possible. A good score here, usually rages from 340-850. The higher is the score, lower would be the interest rates applicable on your recent credit transactions. The borrowers having more than 700 as the credit score get multiple financing schemes & beneficial interest rates.

Whichever monetary agency is chosen by you to get the credit from, gets your credit score from all the three Credit Bureaus-Transunion, Equifax & Experian. All these bureaus have different scores & so the average is taken of all three, which gives a compact credit score. With this, the decision is been taken for giving the credit which affects the further credit transactions.