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Credit score is a number in your credit file that lenders rely on when you request a new loan, seek a refinance, apply or a new credit card etc. Here is a basic rundown on what is a credit score, how it is calculated and what you can do to improve your credit score. Credit score is a sum-up of your entire credit file.

What is a credit score?
Credit score can tell a lender how reliable you are in paying back the money. This credit score is derived from your past credit history and whether or not you have paid the money on time. The higher your credit score, the more likely you are to pay your credit card debts as well as your other loans on time. To get the best pre-screened credit card offers and to get approvals to loans and mortgages, it is best advised to improve your credit score.

How is credit score calculated?
Credit score, also called as the Beacon score or FICO score is a credit scoring model proposed by Fair Isaac and Company. FICO scores are calculated based on information in your credit report which resides with the three major credit bureaus. The information contained in your file is compared to the information that exists in other consumer credit reports and derives a numerical score called the FICO score.

There are three major credit bureaus and each of them collect and report information in slightly different ways. It is highly possible, the credit score at these three credit bureaus will be different but in close proximity to each other.
Factors influencing credit score
All the entries in your credit report are considered when calculating the credit score. However, some factors are more influential than others when calculating the credit score.

Payment History
Payment history determines 30-35% of your total credit score. The payment history is an important component of your credit score. Here are the important considerations

• Do you pay your bills on time?
• If late, how late?
• How often do you pay late? Are you unable to pay on time?
• How recent are your late payments?
• Have any of your accounts turned over to collection agencies?
• How many accounts have been turned over to collection agencies?
• Have you filed for bankruptcy?

Amount owed
How much money you owe determines about 30% of your credit score. The important factors to consider are

• How many accounts do you owe?
• How many accounts have balances?
• What percentage of your credit line is owed?
• In case of major loans, how much is owed in relation to how much was borrowed?

Length of credit history
The length of credit history is not as significant as the above two but determines about 15% of your credit score. Simply put, the longer you hold on to your credit cards, the better your score will be. Some experts recommend not closing your older credit card accounts to build a good credit score.

New Credit
New credit comprises of 10% of your credit score. The new credit factor looks at how many new accounts have been recently opened, how often have you made requests for credit and the length of time since the credit inquiries were made. If you are shopping for better rates, it does not affect your score because inquiries are made for particular kind of credit during a short period of time.

Credit mix
The overall credit mix is approximately 10% of your credit score. The overall mix factor comprises of the mix of your credit cards, personal loans, mortgage loans etc. The more balanced the mix, the more likely this factor to improve your overall score.

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