One of the biggest questions that any customer has in their mind when they are concerned about their credit report is the fact that they might be or might not be qualifying for a loan at a low interest rate or a mortgage or a new credit card.
While it is next to impossible to get your hands on the credit scoring methodologies that the credit reporting agencies use to determine your credit score from your credit report, the fact that every company has its unique algorithm for the same with multiple versions for it makes it all the more improbable.
So the next time you are worried about ‘is 705 a Good Credit Score’ it is advisable that you keep the following three aspects in mind which greatly determine your credit score:
- 1. Payment History – 35%
Your payment history has the highest effect on your final credit score after determining the various aspects of your credit report. It is nearly 35% meaning that 35% weightage is given to the segment of payment history in your credit report. This is why financial experts and lending professionals constantly urge customers to have a favourable payment history in their credit report with zero delayed payments.
Remember that a delayed payment (no matter how small the amount was and how little the duration of the delay was) will have a massive adverse effect on your credit report. This is why you must do all that is possible in order to keep this aspect of the credit report in impeccable condition and thus ensure that you enjoy a high score in this segment’s calculation and contribution to the credit score.
- 2. Debt Level – 30%
The amount of debt that you are already in when it comes to the credit market greatly determines the credit score and it contributes to nearly 30% of your credit score. This means that in case you already have a mortgage on your house and if you are planning to take out a new car loan the chances are extremely low that you will get a favourable interest rate than the person who is applying for a car loan without having any major debt in the market.
This is why the credit experts suggest that you plan your lending properly and as much as possible think about the future requirements when applying for one. This will ensure that you are enjoying the best possible rates at any given time for your necessity lending.
- 3. Length Of Credit History – 15%
The duration for which your credit and payment history is available with the credit reporting agency will play a significant role in your final credit score. A person who has years of credit history behind him to substantiate his new credit requirements will enjoy a better interest rate or favourable repayment scheme than a person who is relatively new in this segment.
This is why lending experts are of the opinion that you must take care to preserve your credit report and have a favourable credit history behind you to substantiate your credit score.
Other factors like inquiries and miscellaneous aspects account for the rest 20% of your credit report and they shouldn’t be ignored either while you are doing your best to maintain the above mentioned 3 aspects.