Question

1. List and briefly explain the five determinants of a credit score. Why is your credit score important?

Answer 1

ANSWER

five determinants of a credit score -

1. Payment history - Payment history comprises 35 percent of the total credit score and the most important factor in calculating credit scores. past long-term behavior is very much used to forecast future long-term behavior.

2. Credit utilization - Payment history and credit utilization are two factors that make up nearly two-thirds of the score. So, if you pay your bills on time and don't carry big balances, you're two-thirds of the way toward a good credit score. The final credit score pieces can move you from a good score to a great one.

3. Length of credit history - A longer credit history provides more information and offers to a better picture of long-term financial behavior. To improve their credit scores, individuals without a credit history should begin using credit, and those with credit should maintain long-standing accounts.Those who don’t have a long credit history can still have an excellent credit score if they have no missed payments.

4. New credit - Opening multiple credit lines at the same time will improve your score. In fact, such behavior could suggest you are in financial trouble by needing significant access to lots of credit. It is recommended that apply for and open new credit accounts only as needed.

5. Credit mix - It is a vague category. Repaying a variety of debt products indicates the borrower can handle all sorts of credit. Borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders. People with no credit cards tend to be viewed as higher risk than people who have managed credit cards responsibly.

IMPORTANCE OF CREDIT SCORE

Credit score is an important part of financial picture. Lenders combine credit score with the information in the credit report to assess the risk as a borrower. If score is high, it is look like less of a risk and if score is low, lenders may question the ability to pay what any one owe.