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How is Credit Score Determined?

how is credit score evaluated in the US

Just how is credit score determined in the U.S? Here’s what you need to know

A good credit score is very important in any financial decision. Payments and invoices contain many important aspects that must be considered when calculating your score. Let’s discuss these aspects and how they affect your credit score.

How Does Credit Score Work?

  • Your credit score can have a big impact on your investments and purchases. It plays an important role in the lender’s decision to offer you a loan. For example, people with a credit score below 640 are generally considered subprime lenders. 

Lenders charge interest on subprime mortgages at higher rates than normal mortgages to compensate for greater risk.

Conversely, a credit score of 700 or higher is generally considered good and less risky. This enables the borrower to receive a lower interest rate and pay less interest over the life of the loan. Results above 800 are considered outstanding. Each lender defines its own credit score range, but the average FICO score range is:

  • Excellent: 800 ~ 850
  • V. Good: 740 ~ 799
  • Good: 670 ~ 739
  • Satisfactory: 580 to 669
  • Bad: 300 ~ 579

How to Determine a Credit Score?

  • Some of your billing histories are more important than others. When calculating your credit score, different parts of your credit history carry different weights. Credit scores are segmented and determined through five categories of information provided in your credit report.

The following is a general analysis of the 5 factors that credit score models consider.

Payment History

  • Lenders are most concerned about paying their bills on time. They evaluate your credit by analyzing how you have paid your bills in the past. Delinquency, depreciation, debt collection, and bankruptcy affect all parts of your credit rating payment history. The better your repayment history (e.g. loan repayment or credit card bill), the higher your credit score.

Credit Utilization Rate (CUR)

  • The Credit Utilization Rate is the percentage of the credit card limit that is used each month. This relationship has a huge impact on your credit rating. The more credit cards you use, the higher the CUR and the stronger the effect of lowering your score in proportion to the value of this parameter.

Ideally, your financial planner says you should keep your CUR below 30% and pay your credit card fees in full on time.

Credit Period

  • The credit period has a decent effect on your score. The older the loan or credit card, the higher the score is proportional to the parameter value. This shows that you have been using the loan responsibly for a long time and have been paying installments promptly.

Length of Credit History

The length of your credit history, depending on how long each account was opened and your credit balance, represents different types of accounts, including mortgages, credit cards, car loans, and more. 

The score is low, but you shouldn’t use multiple accounts at once to improve.

how is credit score determined in the US

Number of Credit Accounts

  • Credit score also depends on the composition of the loan portfolio, that is, the percentage of guaranteed and unsecured loans in the loan portfolio. 

Having another type of credit (guaranteed or unsecured) can lead to a higher credit rating.

Final Verdict

  • Determining your credit score will help you predict how your lender will consider applying for a credit card or loan. If you think your credit rating is lower than what you want, you can improve your score before taking serious financial action.

Try recovering your credit score with Credit Repair Today. Credit Repair Today is an authorized credit repair consultancy that provides credit score assistance across the United States.

You can also visit our office in Palm Coast, Florida. We can talk face to face to help improve your credit score starting today.

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