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How Do CRAs Calculate My Credit Score

Updated on July 8, 2011

How do CRAs calculate my credit score? If you’ve just been turned down for a credit card, mortgage, or loan, this is probably a question you keep asking yourself. When you hear "credit score", it leads you to believe that you have one credit score. This isn't the case.

You can have several scores developed by different companies. The three major credit reporting agencies (CRAs) are Equifax, TransUnion, and Experian. These companies calculate your credit score differently but follow some general guidelines. 

There are five factors that CRAs use to calculate your credit score. They include your payment history, new credit, accumulated debt, credit history and some miscellaneous factors. Here's what each of these mean and how they affect your credit score.

Calculate My Credit Score
Calculate My Credit Score | Source

Five Factors to Calculate Your Credit Score

Payment History

Your payment history accounts for around 35% of your FICO score. Making late payments and filing bankruptcies hurts your score. Having a record of on-time payments gives it a healthy boost.

New Credit

CRAs check any new credit accounts you’ve opened and use this information for calculating 10% of your FICO score. The CRAs not only check if you’ve opened new accounts, they also check to see how many times you applied for credit. If you only opened one new credit card but applied to many, this will reflect negatively on your score. To avoid this, concentrate shopping for rates during a limited amount of time. Don’t extend searching and applying over a long period.

Accumulated Debt

How much money you owe accounts for about 30% of your FICO score. CRAs look at how much you owe in loans and credit cards. If you owe a lot compared to your credit limit or you haven't paid off much toward your loans, this will lower your FICO score.

Credit history

Your credit history accounts for approximately 15% of Your FICO score. Having a long history credit will increase your score. For example, a college student just starting out on his own and with no credit history will score low on this section. If you're older, paid for a home and several cars with a good payment record, you'll get good ratings for this section.

It is possible to score higher in this section if you have a short credit history if you can show responsible credit management on the rest of your credit history. Using the college student as an example again, if that same student has made utility and rent payments responsibly and on time throughout college, this will help boost a short credit history.

Miscellaneous Factors

The last 10% of your score is calculated with a mix of different things. The CRAs take into account what types of credit you have. Do you have all credit cards or do you have a good mix of one credit card, a mortgage and a car loan? This type of credit history is normal. When CRAs see someone with a long list of credit cards, this sends up red flags and indicates financial instability.

The scale credit score starts at 300 and goes to 800. The higher your score the better and lenders like to see credit scores above 700. To them, this score means you're a good credit risk. Having a score below 600 doesn’t necessarily mean that you can't get a credit card or a loan, but it will most likely affect the interest rate. Higher credit scores not only mean getting the credit card or loan you want, but also getting great interest rates.

Educate Yourself - The more you know, the better your credit will be

Manage Your Credit
Manage Your Credit | Source


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