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How are credit scores calculated?

Couple looking at how their credit scores are calculated | Financial Information | Tiger Finance

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If you’ve been researching your credit score, you might have questions about how it is calculated. Generally, your credit score is calculated based on information that is listed in your credit file. This could be your employment history, your loan and credit repayment history, and how many times you have applied for credit in a short space of time. All of these factors can impact your credit score.

Read on below to find out more about how credit scores are calculated.

How are credit scores calculated?

Your credit score is based on the personal and financial information available in your credit report.

Each credit reporting body uses a different algorithm to calculate your score, while also using varying credit score ranges. Each body may also hold different information about you in your credit file, which could alter your credit score depending on which credit reporting body you look at.  

A credit report provides an overall image of how you use your credit, and how you have in the past.  If you have ever owned a credit card or taken out a loan, you will have a credit history. Your credit file may include information such as loan inquiries, current loans, defaults or judgements, bankruptcies, and details about your repayment history. This information is used by credit providers when reviewing your credit applications.  

Your credit report may include:

  • Your personal details, including your name, date of birth and employment history
  • Details of loans or credit you have had in the past. This may include the credit provider, the type of credit and your credit limit.
  • Details of applications you’ve submitted for a loan or type of credit. This could also include the number of applications in your name, the type of credit and the size of the credit or loan that you applied for.
  • Your loan or credit repayment history
  • Details of any overdue accounts in your name
  • Details relating to any court judgments or bankruptcy that you may have had.

All of these factors can be taken into account when your credit score is being calculated. If you have applied to multiple lenders in a short space of time, this could potentially impact your credit score negatively, as well as making it difficult to find a lender to approve your applications in the future. If you have any defaults or court judgments listed on your report, this may also impact your credit score.

What credit score should I aim for?

When checking your credit score, you should remember that each credit reporting body uses a different algorithm to calculate, and your credit score may change depending on where you check it. Not all lenders are required to report to all of the credit reporting bodies, so your credit file may also be different depending on where you check your score, which may also cause confusion.

Generally, though, you should be aiming for a high credit score, as having a higher score may help lenders to see you as trustworthy. This may make your loan applications easier to approve, and you may get far better loan terms as a result.

The credit score rating system is generally as follows:

  • Excellent: 841 – 1,200
  • Very Good: 756 – 840
  • Good: 666 – 755
  • Average: 506 – 665
  • Below Average: 0 – 505

If you need to improve your credit score, it’s not impossible. Paying off your existing loans and debt on time will help to improve your credit score, as will paying your utility bills on time. Proving that you regularly pay off your debt shows lenders that you are capable of managing your funds.

If you can make at least the minimum repayments due on any personal loans or credit cards by the due date each month, lenders will see that you are a reliable borrower. However, paying off more than the minimum amount every month may improve your credit score.

It’s also possible that your credit file could have errors listed on it, so it’s important to make sure everything listed is accurate. If there’s a mistake on your report, it could be impacting your credit score. If you find wrong information on your credit file, you may need to contact your lender and the credit reporting agency that listed the error.

How we can help

Tiger Finance can help you to find calculate your credit score for free. Try our credit score calculator today to find out your numbers in minutes. If you’re looking for a loan, we can help to get you funded in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved. Call to speak to one of our loan specialists today for your free consultation.

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