What’s in a Credit Score?
Your credit score is like your financial report card. It’s a three-digit number that tells lenders and creditors how reliable you are when it comes to paying your bills on time. But how does your credit score get calculated? We’re here to give you the scoop.
The Three C’s of Credit Scores
Your credit score is calculated using a few different factors, but the most important of them fall under what we like to call “the three C’s of credit scores.”
• Credit History: This includes information about all the credit accounts you have open, such as loans and credit cards. Your payment history is also taken into account, so if you have a history of paying late or not at all, this could negatively impact your score.
• Capacity: This looks at your ability to take on more debt and pay it back, based on factors like income level and other outstanding debts. A high capacity means you can take on more debt and therefore have a better chance of getting approved for loans or lines of credit.
• Collateral: If you are applying for secured loans, such as mortgages or auto loans, collateral will be taken into consideration when calculating your credit score. Collateral can include things such as real estate or vehicles that can be used as security if you default on the loan.
These three factors are weighed differently depending on who is calculating your credit score—banks, lenders, creditors, etc.—but they all play an important role in determining how reliable you are when it comes to taking on new debt and paying it back in full and on time.
Your credit score is one of the most important numbers in your life—it can make or break your chances of getting approved for a loan or line of credit—so it pays to know exactly how it’s calculated. Now that you know the ins-and-outs of what goes into calculating a credit score, you’re one step closer to getting that perfect 800+ rating! The key is understanding the 3 C’s – Credit History, Capacity & Collateral – and making sure to manage them accordingly! With just a bit of effort and some dedication to staying up-to-date with payments, anyone can achieve financial success!