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Payment history affects your credit score

By Sally Maison
Published: Monday, June 7th, 2010

Credit score will play a very important role as far as obtaining loans goes. Any kind of investment today needs a creditor who is ready to lend you some money for the investment. The creditor will take a decision based on your personal financial history. Your financial history also known as credit history will be present in your credit report. The credit report is prepared by three agencies in the United States. These three agencies are Equifax, Experian and TransUnion. The credit score is a number that will be able to concise your entire credit history into a small value.

The credit score is calculated by FICO. These FICO credit scores are calculated based on the different information present in one’s credit report. This data can be categorized into five different categories. These include payment history, amounts owed, length of credit history, new credit and the type of the credit used. Each section or category is given a different amount of importance and this importance is denoted using percentages. Payment history will account for thirty percent of your score while amounts owed will account for thirty percent. Types of credit used and new credit will each account for ten percent of your FICO credit score while length of your credit history will account for fifteen percent.

Payment history is by far the most important factor in your credit score calculation. It accounts for the largest percentage. It will contain details regarding account payments on accounts such as credit cards, instalment loans, mortgages etc. It will also have details regarding any negative public records such as bankruptcy filings, tax liens, any suits filed etc.

Other factors involved include the severity of late payments or how long an account has stood due and the amount that has to be paid on such unpaid accounts. It will also consider the amount of time elapsed since the last payment was made on a delinquent account or the time elapsed since the last negative public record such as bankruptcy filing. It will also contain details concerning the number of items that have been due over the past and number of accounts that have been paid as agreed upon.

Amounts owed are a very important part of your credit history and credit score. It considers the amounts owed on various accounts including the specific accounts such as credit cards and mortgages. It will also consider the account if there has not been a specific kind of balance. The number of accounts with balances will also matter a lot. The proportion of credit lines will also play a large role.

The length of credit history will consider the time since when accounts have been open. All the accounts will be considered including special accounts such as credit cards. The time elapsed since the last account activity plays a large role. The type of credit used will concentrate on the number of the different kinds of accounts including loans, mortgages, credit cards, retail accounts, etc. New credit will consider the number of accounts opened in the recent past and the number of credit inquiries.

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