Credit Scores play a pivotal role in determining creditworthiness, influencing whether lenders are willing to take a risk on borrowers. While it’s just one aspect of the evaluation process, Credit Scores provide crucial insights into a person’s ability to meet financial obligations.
Factors Considered in Credit Score Calculation 
Lenders, underwriters and financial risk managers assess various factors to predict the likelihood of timely bill payments. Key components include:
- Payment History (35%)
- Details on timely payments, late or missed payments and collection information.
- Analysis of the severity and frequency of late payments
- Used Credit Versus Available Credit (30%)
- Evaluation of how much total available credit is being utilized, especially on Credit cards and revolving Lines of Credit (LOC)
- Consideration of the credit limit on accounts
- Credit History (15%)
- Duration of credit accounts, emphasizing both the oldest and most recent accounts
- A reflection of the borrower’s ability to handle credit responsibly over time.
- Public Records (10%)
- Assessment of bankruptcy history or derogatory public records, indicating potential risk
- Significant negative impact on the Credit score for those with a history of such events
- Inquiries (10%)
- Anytime your credit file is accessed for any reason, the request for information is logged on the file as an inquiry. Inquiries require your consent, and some may affect your credit score calculation.
- Note that only inquiries which may impact a credit score are those related to active credit seeking (such as applying for a new loan or credit card)
The Impact of a Better Credit Score
A higher credit score not only increases the likelihood of mortgage approval, but also translates into better interest rates. Borrowers with better credit scores often secure more favorable terms, leading to lower interest payments over the life of the mortgage.
