How does the credit score system work

how does the credit score system work

Answers

A credit score is a tool used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Based on information in your credit file, the credit reference agency analyses your information using a complex mathematical model to yield your credit score.

Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent. Your score is calculated by a mathematical equation that evaluates many types of information found in the credit file.

Many different formulas are used to calculate credit scores, but most are based on the following factors, which each scoring model weighs differently:

Payment

history. A record of late payments on your current and past credit accounts will lower your score.

Public records. Matters of public record such as bankruptcies, judgments, and collection items may lower your score.

Amount owed. Owing too much will lower your score, especially if you're approaching your total credit limit.

Length of credit history. In general, a longer credit history is better.

New accounts. Opening multiple new accounts in a short period of time may lower your score.

Searches. Whenever someone else gets your credit report -- a lender, landlord, or insurer, for example -- an search is recorded on your credit report. A large number of recent searches may lower your score.

Accounts in use. The presence of too many open accounts can lower your score, whether you're using the accounts or not.

Source: answers.yahoo.com

Category: Credit

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