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December 7, 2015

What Information Is Used to Calculate a Credit Score?

Anyone who is seeking to obtain credit benefits from knowing something about credit scores and how they are calculated. It is important to remember that your credit score helps to determine whether or not you will be able to get the credit you want.

Two of the worst situation you can be in, as far as obtaining credit is concerned, is to have defaulted on repayments in the past and to never have had any credit previously. If this applies to you then it may be a good idea to take a look at what tradelines have to offer. Purchasing a tradeline gives you the opportunity to lease credit by being added as an authorised user. Whether you choose this route to obtaining credit or not, it’s useful to know how your credit score is calculated.

Important facts about your credit score

Your credit score is calculated using several different factors which fall within five separate criteria.
  • The amount owed on current credit.
  • Your payment history.
  • The details of the new credit you are applying for.
  • The length of credit history you have. 
  • The types of credit you are currently using.

Most of the time you will find that the biggest influencing factors are the amount of money you owe and your payment history. However, it is important to note that each individual case is different.
You can understand why a substantial amount of debt, a poor payment history or a limited payment history may cause problems if you want to apply for credit for items like a car or household appliances. That being said, it is important to remember that there are still options open to you, if you are in this situation.

Ways to improve your credit score

One of the most obvious ways to improve your chances of obtaining credit is to improve your credit score. This can take time and patience, but there are some tips it is useful to remember.  
  • Do not apply for several different types of credit when you make your first application; just stick to trying to obtain one or two different types.
  • Never take out more credit than you know you are able to repay.  
  • Don’t avoid problems with repayment; come to an agreement with the provider.  
  • Current payments have more weight than old debt when establishing your credit score

If you need to get credit quickly then you may want to choose the tradelines option.        

How purchasing tradelines can help you get the credit you need

The option of purchasing tradelines is likely to be of most use if you have a limited credit history, or have previously had a poor payment history which is causing you problems. If you are unsure what a tradeline is, it is simply a line of credit which records the payment history over a period of several years. You can purchase a credit line that shows a high amount of credit obtained and an excellent payment history. You are then added to the tradeline as an authorized user which means the information is taken into account when calculating your credit score.

Any credit you obtain and any payments you make are taken into account when calculating your credit score. That is why you should only borrow what you can afford to repay and make sure that you keep up to date with repayments. 

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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Item Reviewed: What Information Is Used to Calculate a Credit Score? Rating: 5 Reviewed By: EconMatters