Understanding Credit Scores
Credit score is a problem for many borrowers, or better to say, establishing good credit score. It is so important because a person is likely to be approved or rejected for the loan in a bank on the basis of good or bad credit. This refers to such loan products as mortgages, personal loans, credit card not and any regular loan offered by a bank in general.
Credit Score
Credit score is something that decides a person destiny in many issues such as interest rate amount and the type of credit a person can account for. Besides, bad credit is frequently responsible for the rejection of loan application and all the doors are opened for a borrower with a good credit rating.

Credit score is built on the information about personal repayments. It is meant to show a borrower's ability to repay in time with regards to bills or previous credits and so on.Credit rating shows all the information about a person's previous loans as well as any repayments he or she was supposed to make on due time and whether they were timely.
Credit score ranges from 300 to 850 and the higher the number, the better is the score and a person is more likely to be accepted in a bank. Good credit score shows a prospective lender that a borrower is decent, solvent and creditworthy. The better the score, the more beneficial terms of interest a borrower can account for as well. Having good credit score means that financial freedom; bad credit means that the choice of lending options is quite limited.
How Credit Score Is Calculated
Credit score information can be acquired from credit agencies. While calculating personal credit score there are several points that are taken into consideration.
- Payment history goes the first. It amounts up to 35% of the whole credit score information. (Payment history means that all the credit card and mortgage repayments are taken into consideration as well as repayments on any loan or retail products. Recent payment record is especially important. Timely and delayed repayments also matter. It is very advisable to repay everything, even including any minor bills, in time. Timely repayments increase credit score a lot.

- Outstanding debt is the next to matter. It amounts to 30% of the credit score and it is the information about your current debts. This basically means how much money a person owes. People with high credit limits but little expenses (i.e. customers using about 25% of the credit available) are likely to get good credit score and consequently are favored by lenders most.
- Length of credit history matters about 15%. Lenders like customers with some sort of credit history (and are very suspicious about the ones with none) and in this respect the longer the history, the better.
- New credit is also taken into consideration and it amounts up to 10% from the total score. Every borrower should know that notwithstanding the fact that credit checks do not affect credit rating, it still decreases a bit. So, every time a person applies for a new loan, credit check is carried out and if the applications are frequent, credit rating can be affected. Besides, frequent applications can be taken by lenders as the indicator of your non-creditworthiness.
- Type of credit also matters (up to 10%). The number and character of loans taken by a person (i.e. mortgages, credit cards, accounts, auto loans, personal loans and etc. - the diversity or absence of diversity is also taken into consideration. It is always better to have several credit types in the history than just credit card loans.
- Credit score is essential for a person who plans to apply for a loan, any type of loan. However, there are other things that lenders also take into consideration and they are status of employment as well as term. Besides, income amount is also taken into consideration and even personal information such as address can play a role in credit approval or rejection decision.