Carlos Hank Rhon - Importance of Credit Score for Obtaining a Loan

Bankers determine your credit worthiness by referring to your credit score as compute by FICO. This is the Fair Issac Company that computes credit scores based on the information received from the credit reporting agencies such as Experian, Equifax and TransUnion.In order to get a credit, your credit rating has to be good. FICO scores range from 300 to 850. Here a score of 720 represents a good score, whereas, a score of 620 and below is considered poor. If your score is between 500 and 580, it is a bad score, and you will find difficulty in obtaining financing.

 So what constitutes your credit score. 10  percent of it is based on the credit mix that you have. Auto loans, home loans and credit cards are the best combinations. A further 10percent is based on your recent application for credit. The more recent the application, lesser will be your score. The next 15percent is crucial, and is dependent on the length of your credit history. It takes time to build this part, since it depends on how quickly you have been repaying your credits. The sooner you pay off your credits, the higher this part of your score climbs. Your scores are liable to fall if you take longer to repay your debts. 30percent is based on the debt that you already have in proportion to the credit limit that you have. It is best to keep the ratio below 40 percent for a good score in this section. Ratios above 40percent cause a sharp fall in the score. So, be extra cautious how much debt you build up in relation to the maximum limit that is allowed to you. 

The last 35percent is dependent on the timely payments made by you. You get a good score if you have not defaulted on your periodic payments, and your checks have not bounced. Credit Scores usually stay in the system for a period of seven years. This makes them so important when seeking a loan.