Credit score is undoubtedly one of the most important financial indicators. So the first question you need to know is: how is your credit score determined?
The first thing you need to know about determining your credit score is that your credit score is prepared in line with your credit reports. Credit reports are reports that are adjusted according to certain time intervals by systematizing the information about all your credit transactions. Whether these reports are good or bad depends on your financial responsibility. It is included in credit reports when you fulfill or not fulfill your financial responsibilities. These can also be called your financial records. If you ask how all the information about you is included in the credit reports, the answer is that lenders or creditors report the information to the three credit bureaus. This is how your credit score determined. Lenders or creditors report financial transactions about you to three credit offices or one or more of them. These three credit bureaus (Equifax, TransUnion and Experian) generate your credit reports based on the information they have obtained.
Lenders or creditors do not have to provide information about you to all three credit bureaus. This is the second element you should know. You don’t have a universal or single credit score. All three credit bureaus determine your credit score based on the information they receive and the systems they create. In addition, three credit bureaus use different credit score ranges. Your credit score determined based on these credit score ranges.
The last thing you need to know about determining your credit score is the types of credit scores. There are several types of credit scores, but the most commonly used and preferred types of credit scores are FICO score and VantageScore. The first choice for lenders and creditors is the FICO score. Therefore, you should learn how your credit score is determined according to your FICO score.
Based on which elements is your credit score determined?
There are 5 factors that affect and determine your FICO score the most. These factors are;
1- Payment History (35%),
2- Collected Borrower Amounts (30%),
3- Length of Credit History (15%),
4- New Credit (10%),
5- Using Various Types of Credits (10%).
Your credit score determined based on a maximum of the first two factors.
This is the most effective factor in determining your credit score. 35% of your credit score is based on payment history. Your credit score will continuously increase as long as you make your payments on time and in full. However, even if there is a delay, your credit score will decrease considerably. This delay covers 30 days after the last day of your credit payment, ie until the new payment day arrives. If you complete your monthly payment during this time and talk to the lender, it may delete this from your credit reports. In this interview your credit score determined. Otherwise, your late payment will remain in your credit reports for 7 years and the effect on your credit score will diminish over time. This is the exception if there is a bankruptcy situation. It will be included in your credit report for 10 years.
Collected Borrower Amounts;
Indicates what percentage of your total credit balance you are using. You must have a maximum credit rating of 30% to have a good credit score. Even if you have an excellent credit score goal, this rate should be a maximum of 9%. This will affect your credit score by 30%. If this happens, your credit score determined; The ratio of all borrowings to your total loan balance should be 30% and the total amount of your debt within your total loan balance should be 30%. Otherwise, your credit score will decrease.
Length of Credit History;
The length of your credit history gives confidence to lenders and creditors. Because you prove that you take responsibility for your debt and develop your relationship with the lender or creditor. It is one of the main factors used in calculating your credit score and affects your credit score by 15%. In order to have a good credit score, the average credit age must be more than 9 years. Your credit score determined.
New accounts will not only reduce the length of your credit history, but can also cause you to have a hard credit inquiry before you receive new credit. These will affect your credit score by 10%. However, if you take credit from the lender or creditor to whom you have already borrowed, there may be a soft credit inquiry. Therefore, you should ask your lender or creditor what kind of inquiry you will encounter.
Using Various Types of Credits;
Taking financial responsibility for different types of credit at the same time creates confidence for lenders or creditors. If you have a uniform type of credit, it gives the impression that you cannot take the financial responsibility of other types of credit, and it is something that lenders or creditors don’t like. These will affect your credit score by 10%. For example, if these happen, your credit score determined; Credit cards, retail accounts, installment loans, mortgages, etc.