EDUCATION
What are the factors that affect your Credit Score?
A Good Credit Score Unlocks Your Financial Potential
Your credit score is an indication of how well you are able to manage your finances. Think of it as your “adulting” report card, which prospective lenders such as banks can use as a reference when approving loan applications for your dream home, family car, or business ideas. It can also be used as a point of reference for relocating and investing overseas.
6 Factors That May Affect Your Credit Score
A credit score is based on how you use your credit accounts such as credit cards, loans, or mortgages. The higher your score is, the more creditworthy you are. The credit score assessed by TransUnion ranges from 300 – 950, with a higher score indicating higher trustworthiness. Credit ratings also range between A and J, with A being the highest grade.
According to TransUnion, factors that may affect your credit score are the following:
- Payment History: This gives lenders a picture of your ability and attitude on paying back your debts. It is basically your track record of paying your credit card bills and other loans on time. Take note that late payments may negatively affect your score.
- Credit Utilization: This is the ratio of your current revolving credit, like your credit card balance, in relation to your total available revolving credit. If you have two credit cards, for example, you should keep the credit utilization rate of each credit card, as well as the total credits of both credit cards, under 30%. The optimal utilization level is at 30% and lower credit utilization rates are better for your score.
- Length of Credit History: This is the length of time your credit accounts have opened and have been maintaining. If you don’t have credit history or if it is too short, it is difficult, if not impossible, for lenders to understand your financial history. This may affect your loan application negatively. Generally, the older your credit account, the better.
- Types of Credit in Use: Having different types of credit tools such as a mortgage, bank loans, and credit cards – which are paid on time -- may have a positive effect on your score.
- Credit Inquiries: Whenever you apply for a credit product, the creditor makes a credit inquiry about you. The number of credit enquiries could be an indicator of one’s need for loans. If there are frequent inquiries within a short period of time, it may reflect a stronger need for financing and hence may have a negative impact on your credit score.
- Past Credit Usage Amount: A vigorous increase or decrease in your credit usage may indicate a fluctuation in your expenses and could be interpreted as a sign of financial instability.
Credit score calculation is complex and multi-layered, done by intricate formulas and algorithms. Complicated man, may easy solusyon para diyan. TransUnion provides precise and comprehensive service, calculating your credit score using your personal credit data provided by our partners such as banks and other financial institutions on a regular basis. Magpa- assessment na sa TransUnion, for easy, hassle-free, and trusted Credit Score calculation.
