How to Calculate Credit Score?

Credit score reflects your credit reputation. It is a good practice to monitor your credit report regularly and carefully observe your credit scores. This score is calculated by credit bureaus based on your credit history, by comparing your complete credit history with recent credit history. But the actual procedure is confidential and its details lie with credit bureaus. However, you can make an estimate of your credit score or can get an idea of the range your credit scores fall in.

Here are certain instructions for figuring out the range of your credit scores. This involves monitoring different areas of your credit reports.

  • Your first and foremost step should be looking over your credit record for any events that pose a negative effect on your credit score. Problems like bankruptcies, pending payments, and events of referring your account to collection agencies damage your credit score. More are such issues; lower will be your score.
  • Your next section under monitoring should be the good sections that put a positive effect on your credit report. These sections balance the problematic areas of the report and diminish their effect. It boosts up the lowered score by 30% and raise the credit score.
  • Make sure that there are no pending payments, and if there are any, clear them as soon as possible. Don’t pay attention only on recent debts; older debts have more potential in harming your credit score. This section deserves special attention because 2 years of payment history contributes to about 35 percent of a credit score. 35% of positive scores mean a lot, thus it increases the importance of regular payment.
  • You should know one thing about your credit that more applications for credit mean more debt because credit creates a debt between creditor and applicant. Therefore, more credit lowers your credit score.
  • Keep these things in your mind while calculating your credit score. Also consider the duration on which your credit history is based. After having these considerations in your mind you can compare it to a perfect history for getting an estimate of your scores. Usually credit scores range from 300 to 850. So a perfect history is one that makes credit scores in the range of 850. Scoring below 650 means low credit score.

For a good credit score, consider these tips also. These might be helpful somewhere.

Experian, Equifax and TransUnion are major credit bureaus, sometimes there may be discrepancies in your credit scores of three bureaus, for that make sure your credit history is rightly reported to all three agencies.

Monitor your credit history regularly to make sure it is free from errors and fraudulent claims. Moreover, you should also seek advice of Your Personal Financial Mentor about how to manage your credit score because he can help you establish a good credit history while maintaining your finances efficiently.

Avoid occurrences of situations like bankruptcies and events like referring of your account to a collection agency. These are major setbacks for your credit scores.

Categories: Credit

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October 18, 2013 How to Calculate Credit Score?