Credit Score-Creditworthiness in Numerals

A credit score is a numerical manifestation of an individual’s creditworthiness. The credit score determines the repayment capacity of an individual. The credit score is based on information furnished in a credit report prepared by a credit bureau or credit reference firms.

The credit score is made use of both by banking as well as non banking financial institutions (like insurance companies, employers, government departments, mobile phone companies etc.) A credit score helps a creditor to decide the different terms of the loans like interest rate and credit limits.

Factors influencing credit score
As many as five factors determine a credit score. They are as follows-

• Amount owed
• Payment history
• Length of credit history
• Types of credit used
• New credit


Amount owed
Amount owed constitutes 30% of the credit score. Owing money or having credit accounts does not necessarily mean that a debtor falls in the high risk zone. But borrowing a lot of money essentially suggests that the individual is a spendthrift and there are chances that he will make late payments.

Payment history
Payment history constitutes 35% of the credit score. The main aspect of payment history is whether a debtor has made his past debt payments regularly or not. However, if the overall credit picture is good, a few late payments of the debtor can be overlooked.

Length of credit history
Length of credit history constitutes 15% of the credit score. A longer credit history indicates that a debtor is responsible enough to make payments over a time period. Nevertheless, length of the credit history alone does not decide an individual’s credit score. Other factors are also taken into consideration.

Types of credit used
This aspect constitutes approximately 10% of the credit score. Retail accounts, installment loans, mortgage loans, finance company accounts all impact the credit score to a great extent. A healthy combination of the different account types improves an individual’s credit score.

New Credit
This constitutes approximately 10% of the credit score. People with short credit histories and those who have opened several debt accounts within a very short time span are not regarded as very reliable consumers. This impacts credit score to a great extent.

Since credit score keeps changing depending on how well you maintain your credit account, an individual has ample opportunities to repair his credit score in future.