What is Credit Scoring?

“Credit Scoring” is your personal financial background computed by each country’s credit score organisations: some government link, some private to identify the level of your credit risk based on the following categories:

1. Payment History (35%)

The lender will usually look at whether you have paid your credit accounts on time, based on….

• Payment information on all types of accounts (personal loans, mortgages, credit cards etc.)
• Public records and collections items (events of bankruptcy, suits, repossession etc)
• Details of late or missed payments based on recency and frequency
• Number of accounts that showed late payment

2. Amount Owed (30%)

Owing money in a few credit accounts does not give you a negative score, however owing too much money to too many credit accounts may label you as overextended causing late or missed payment. Consideration will be taken on

• Amount owed on different accounts
• Balance in certain accounts (credit cards showing a low balance is a plus)
• Number of accounts with balances (too many may be viewed as over extension)
• Total credit line given by all “revolving” credits and the maxing out of such accounts
• The amount owed in loan account compared to the original amount borrowed

3. Length of Credit History (15%)

Longer credit history is a plus point but if you have a short history with good payment record is good as well. Factors taken into consideration are:

• The length of all your credit accounts (age factor is considered)
• The length of specific credit accounts
• How long you have been using these credit accounts

4. New Credit (10%)

Opening up several credit accounts in a short span of time is considered greater risk especially if you do not have a long term credit history. Factors considered are:

• How long since you opened a new account
• How many new accounts you have
• How many recent requests you put in for credit cards

5. Type of Credit (10%)

Your credit mix will be taken into consideration if there is little information on your credit report:

• Mix of credit types i.e credit cards, loans, mortgage loans etc
• Total number of accounts you have
• Total number of accounts you have but not in use

If you have made a few mistakes or have been making late payment, it is not going to give you a totally bad rating. Other positive factors listed above may neutralise the effect