The credit score is a vital factor in helping banks decide whether to loan you money and allow you to get a credit card. What have you known about it?
What is the credit score?
Credit score (FICO) is the score that financial institutes use to rate your credibility when applying their loaning measures. The higher your score is, the better you are rated. A score of 740 is considered an excellent one and can give you good interest rates when working with banks.
What are its purposes?
Credit score determines customers’ capability to loan capital as well as the credit limit that banks could give you. It can also affect your next loans if your credit score is lower than the minimum acceptable limit.
How is your credit score calculated?
3.1. Debt payment history (35%)
This reflects whether you pay your debts on time, pay them in full, or you are late on your payment, etc. The majority of the credit score is based on the loaners’ payment history. Serious and on-time payment will be the most vital factor affecting individuals’ credit scores.
3.2. Credit debts (30%)
This reflects all the credit debts and debt rates generated from the total number of loans provided to you by the banks. According to experts, a person with an ideal credit score tends to maintain a credit debt rate of averagely 7%.
3.3. Credit background period (15%)
This reflects how long your credit account has been operated. The longer this time is, the better it is, since banks or credit organizations can evaluate your financial activities more comprehensively and thoroughly.
3.4. New credit (10%)
Opening new credit accounts tends to not be favorable, especially opening them continuously in a short time. If your credit accounts have been opened for a long time and have operated for at least six months, this will promote your credit score and help you build a long and stable credit history.
3.5. Credit categories (10%)
This reflects all types of credit that you own, such as credit cards, loans (student loans, home loans, or car loans, etc.). Experts believe that having used several financial leverages and on-time payment shows that a loaner has the ability to handle credit debts well.
The importance of credit score
The credit score is an index evaluating your current financial situation so banks could decide whether to lend you money. Globally, credit institutes rate a loaner based on the FICO credit score (Fair Issac Corporation – an immensely reputable personal credit rating company) with a scale ranging between 550 and 840. In Vietnam, experts have also built a credit scale, yet it is slightly different and under the control of the CIC Credit Center.
When will your credit score change?
There are 3 major factor groups that affect your credit score, including the number and situation of your debts, the debt payment history, and the credit relationship history. Experts will calculate your credit score based on these 3 groups.