Credit Report - How Your Credit Score is Determined

A credit score refers to the three digit number appearing on a credit report, which plays an integral role in influencing the decision of lenders while assessing the credit risk you pose for them as borrowers. Credit scores are generated through statistical models using the information present in your credit report. However, the scores are not stored physically as a part of your credit history. Instead, it is generated when a copy of your credit report is requested by a lender and is included in the credit report and viewed by the creditors. Your credit scores may fluctuate according to the information recorded in your credit history.

As per credit report government regulations, credit scores are determined on the basis of over 80 factors combined under 6 different classes. These 6 classes are an individual’s payment history, credit usage, length of credit history, credit accounts, credit applications and bankruptcies.

The manner in which you have paid off your past credit accounts are reflected in to your payment history and any record of late payments can negatively impact the credit score. The difference between the amounts of credit you have used and your credit limits reflects your credit usage and affects your credit score accordingly. The greater the difference, the higher your credit score gets.

As per credit report government regulations, the length of credit history refers to the number of months your credit accounts have been on a credit report. The length of your credit history is one of the most significant factors, affecting the credit report, as lenders are typically suspicious about borrowers who do not have any established pattern of borrowing money and paying it back. A history reflecting a good record of repaid loans has a positive influence on the credit scores.

As per credit report government regulations, your credit accounts show the number and types of your credit accounts such as credit card accounts, car loans or mortgage loans. The number of times you have applied for credit recently influences the record of your credit applications while the records of bankruptcy (if any) and their period have a direct impact on a credit report. The Fair, Isaac, and Co is the recognized agency that distills all these details into the three-digit number known as the FICO score.

The FICO credit scores are used by all the three major credit-reporting agencies, namely Equifax, Trans Union and Experian.

In order to keep a track of your credit report, credit score and credit history, you can download your free credit report online. You may report errors or discrepancies appearing on a credit report to the credit reporting agencies and the creditor. These errors might be affecting your credit score and thus, by correcting them at the earliest, you stand a good chance of improving your credit scores. A good credit score will help you in securing loans at lower interest rates and gain the trust of lenders.