A credit score is a statistical number that evaluates a consumer's creditworthiness. It is based upon credit history. The credit history keeps a record of how long an account has been opened, the amount owed and the number of credit accounts owned.
Fico range
Nowadays, the most commonly used credit score is the Fico score, which its’ range is around 300-850. A good credit score will be around 600-750. A low credit score will be 400 and lower. Credit score directly affects the interest rate. With a low credit score, people have to pay in a higher interest rate and vise Versa.
Calculation of credit score
In the calculation for a credit score, payment history counts for 35%. Payment history shows if people have paid their obligation on time. The total amount owed counts for 30%, which is also known as credit utilization ratio. It is the amount of revolving credit people currently using divided by the total amount of revolving credit people have available. Length of credit history counts for 15%. With a longer length of credit history, it gives more data that show the person’s tendency to pay obligations. Also, the remaining are the new credit and types of credit used, which both take 10% of the calculation. New credit factors how many accounts people have. Types of a credit card show if a person has a mix of installment credit.
Most importantly, in order to win a good credit score, we need to pay the bills on time.
Written and Researched by Annette Zhang