When you avail of a new financial product the Credit Information Corporation is notified and your record is updated to show that you have a new loan, or a new credit card, or a new bank account. It displays to readers that you are taking out credit. This way you are building your credit file and building your credit history.

It is good to have a credit history. It will help you when you are applying for finance in the future, and will help to support you and your family in times of need. When it comes to buying a house, a car, or if there are family emergencies that requires financial support, you may need to apply for a loan. Your credit history will be checked during your loan application process, and the better your credit score, the more likely you are to get the loan.

Your credit score is a 3-digit number that ranges from 300 up to 850 with scores above 700 being considered as GOOD scores and scores above 750 considered as EXCELLENT. If your score is below 600 you have a BAD credit score and you really need to spend some time going through your credit report looking at reasons why it is bad and trying to fix them.

Since your Credit Score is an indicator of the likelihood of you paying back a loan, lenders look at it and set their rules of who to lend to based,in part, on your credit score. So how is it calculated?

Your credit score is calculated from a number of factors but they include:

1. Your payment history.
   • If you miss payments, do not pay, or are late with your payments, this information is reported to the CIC and it will reduce your score. Being over 30 days late with a payment could affect your score by up to 100 points, meaning that someone could go quickly from having a GOOD score to having a BAD score in just a couple of months.
2. Amount of total debt.
   • The higher the amount of your borrowing, the more likely you are to default on loans and stop making payments. You could have several small loans, or 1 or 2 big loans, the number of loans does not matter as much as the total amount that you owe on all your loans and credit cards added together.
3. Length of Credit History
   • The longer your credit history the better. Start young with getting credit, but always keep it controlled and never default on repayments. People with more history have more data that banks and lenders can read and analyse.
4. Types of Credit
   • The more diverse your credit file is, the better. If you have different products and they are all in good standing, you are an excellent person to lend to, and clearly financially educated and aware of your responsibilities. You might have a short term loan, a credit card or 2, a loan to pay for your vehicle, and a loan to pay for your accommodation. You could have positive credit accounts such as a savings account, checking account and payroll account, a time deposit account and a pre-paid card account. You could have accounts at multiple banks. Money going between accounts could show that you are managing your money, or it could show that you are hiding your money.
5. New Credit
   • Applying for more and more new credit causes your credit file to be accessed. The more companies accessing your credit file, the lower your score will be. If you have to take out new credit, do so slowly, and spread out applications over several months.

Now you know how your credit score is calculated, how to improve it?

Take out credit, manage it properly, pay it back in full and on time, and reap the rewards for a better future.

iPera. Your future, Today.