It’s undeniable that we all get what we want based on our level of appeal towards others.
While this attractiveness may not necessarily be physical, something about you must speak in
your favor for you to get what you want. Did you know that financial institutions and other
credit facilities apply this same principle to give you credit?
So, what is a credit score? Credit score is a numerical scale that rates your credit risk or
worthiness, the higher the score, the greater your chances of getting credit and better terms of
repayment. With financial and credit institutions, the higher your credit score, the more
attractive they perceive you. In most economies across the globe, credit score scale runs from
300 to 850. The lower the score, the less appeal you portray, as you are considered to have
higher risk of defaulting. Indicatively, the scale provides a score between 300 to 629 as bad,
630 to 689 as fair, 670 to 739 as good, 740 to 799 as very good, while 800 to 850 is looked at
How is one’s credit score calculated? Credit scores are tabulated from credit reports that are
collected by the 3 major credit agencies like Experian, Equifax and Transunion. From the
reports, credit agencies use five elements to establish one’s credit score. The first element
being one’s payment history on previous credit which accounts for 35% of the credit score.
Secondly, the total amount owed to any financial or credit facility accounts for 30% of the
score. Thirdly, the duration of credit history between an individual and the credit facility
carries 15% of the total weight of the score. Fourthly, the type of credit given you have on
your credit report (revolving credit, personal loan, etc.) accounts for 10% of the score. while
any Newnew credit applied fortaken by the individual also accounts for 10% towards the total
credit score, but these applications for new credit result in lowering your score initially.
What is the importance of a good credit score? Using the analogy of attractiveness, a good
credit score enables one to get credit facilities such as mortgages, asset financing and a higher
limit on credit cards, with ease. The picture painted by one’s credit score argues their case for
them in that credit and financial facilities have confidence that the borrower will repay the
credit in a timely manner.
How can one maintain a good credit score? In order to maintain a good credit score, one
has to strictly adhere to the 5 elements used to calculate one’s credit score. One should
therefore pay their credits on time, maintain a longer relationship with a specific creditor,
maintain a low amount of debt and ensure that most of their spending goes towards
purchasing assets, rather than into consumption.
How does one check their credit score? Credit agencies across the globe compile credit
reports that indicate the creditworthiness of an individual or entity. One can therefore request
their personal credit report from the credit agency, usually for a fee if you have already
requested your free annual report.. Credit agencies like Experian offer such services for free.
On the other hand, one’s credit score can also be ascertained by the potential lender or issuing
card company, but this process is what is called a “hard pull” and this will have a negative
affect on your credit score.
Notably, the dependency on credit for both personal and business growth is on the rise, as
such, the questions one should ask themselves are; am I attractive before the eyes of any
financial or credit facility? If not, what am I doing about it?