Credit Score Formula – You May Not Know
Credit Score is a numerical figure, which reflects your financial status. There are several formulas for computing a credit score. FICO score, Vantage score, Plus Score, CreditXpert credit scores and the FICO Expansion score are some of them. But, the standard way to calculate a credit score is, with the formulae of Fair Isaac Corporation.
Usually, your credit report and FICO credit score is calculated on the basis of your current and past financial transactions. Basically, it includes information on your credit card, car lease, utility bills and other information regarding your finances, made in the past as well as present. If you have made your past payments on time you will get a good credit score.
How do I calculate my FICO credit score?
Not much is known about the exact formula of the FICO score. But, your FICO credit score is calculated on the basis of some information. The total score is determined on the basis of
- 35% of your payment history.
- 15% on the length of your credit history.
- 10% on the number of new credit accounts you have opened or applied for.
- 30% on the amount you currently owe to the lenders.
All the three credit bureaus; Equifax, TransUnion, and Experian, calculate your credit score based on the same formula. ”’How do I know if my credit score is bad or good?”’ Usually a FICO score ranges from 300 to 850. The three digit numerical value determines if you have a sound credit score. The given chart will give you a better understanding of where you stand.
| Serial no: | Credit Sore Value | What does it reflect? |
| 1. | 700 – 850 | Excellent |
| 2. | 680 – 690 | Good Credit |
| 3. | 620 – 679 | Average Credit |
| 4. | 500 – 580 | Low Credit |
| 5. | 300 – 499 | Bad Credit |
As you know the value of your FICO scores, will help you to determine the kind of loan you can qualify for and the interest rate you will be charged against it. When your credit score is low, it reflects that you are less credit worthy. As a result, the lender may find it a risk in sanctioning you a loan amount. Even if they approve, you have to pay a high interest rate.
Credit score plays a very important factor in your financial life. So, if your Credit Score is low, try to improve your credit score immediately. Correct financial knowledge will also help you to improve your financial situation.
