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Whenever you apply for a loan package, lenders/credit providers have to make reasonable enquiries about your financial situation. They determine your credit worthiness and ability to make repayments by taking a look at your credit score. So, it is important that you know the components that make your score.

What are the Components of Credit Score?

Whilst the formulas for calculating scores are quite complex and secretive, its components are not a secret. To help you understand, here is a list of components along with their relevant percentage assigned to each component:

35% for your “Payment history” – Late payments on bills, such as a mortgage, credit card or automobile loan, etc. will cause score to drop. Bills paid on time will improve your score.

30% for “Credit utilisation” – The ratio of your current revolving debt (such as credit card balances) to your total available revolving credit or credit limit will determine your credit utilisation.

15% for Length of your credit history – The aging of your credit history can have a positive impact on your score.

10% for Types of credit used – You can benefit by having a history of managing different types of credit (e.g. mortgage loans, instalment loans, revolving credit, personal loans, etc.)

10% for Recent searches for credit – Hard credit enquiries, which occur when you apply for a credit card or home loan (revolving or otherwise), can hurt your score, especially, if done in great numbers. If you are “rate shopping” for a mortgage loan or auto loan (e.g. a fortnight or 45 days), you will likely not experience a meaningful decrease in your score as a result of the credit enquiries. As the scoring models consider all hard enquiries that occur within 14 or 45 days of each other, as only one.

What is the Impact of Credit Enquiries?

While all enquiries are recorded and displayed on your personal credit reports for two years, they have no effect after the first year because most credit scoring systems ignore them after 12 months.

Some enquiries (called “soft enquiries”) are not considered by credit scoring systems and they do not have an impact on your score. Here is a list of “soft enquiries” that do not have an impact on your credit scoring:

>> A report obtained by you for personal use

>> A report obtained by the employer for employee verification, or

>> A report obtained by companies initiating pre-screened offers of loan or insurance So, these are the components that determine your score. I sincerely hope this article increases your awareness of credit scores.

September 8, 2014 – They decreased their deposit rate to -0.20% and interest rate to 0.05% and declared two new programs through which they will buy asset backed securities and bonds. The news announced the dropping of the euro to 1.29 US dollars.

The purchasing managers’ index was also changed downwards. The total Markit PMI output went down to 52.5, which is lower than the expected 52.8 and the 53.8 that was July’s concluding output. In July Eurozone’s retail sales decreased by 0.4%, after witnessing an increase of 0.3% in June. The decline in July was more than expected.

In the United Kingdom, the Bank of England managed to keep up its asset purchase ceiling at £375 billion. It also managed to regulate its bank rate at 0.5%, which has been maintained since early 2009.

The finance minister of Germany, Wolfgang Schauble stated that they might miss their growth target of 1.8%, let alone exceed it, as he had expected two months earlier.

The economic status of US remained healthy, and the latest news pointed to a steady recovery. In August alone, employers made an addition of 142,000 jobs, which lowered the unemployment rate to 6.1%.

For the FOMC meeting that will take place in the mid-September, the Fed issued their Beige Book. The spending rate of consumers and residential real estate happenings are positive, but reserved. Almost all of the districts have reported a lacking of skilled labor, and the price pressures stay low.

The pending home sales in July also increased more than expected. The trade gap in the US was also shortened by 0.6% in July to US$ 40.5 billion because of the increase in imports and exports. The official increasing rates were 0.7% for imports and 0.9% for exports.

The Brent price decreased lower than $100 last week, due to which energy stocks struggled.

The decrease in Chinese demand for iron-ore led to prices falling under $85/ton which is a record decrease in 5 years.

The Fed will set a rate during a period of full employment and steady inflation of 2%, this is defined as the neutral Fed rate. This Fed rate, even though it is just an estimate, still has a lot of significance, since it will act as a determinant for long-term bond yields.

Credence Independent Advisors was born from compelling opportunity in the financial services world. In the ever changing dynamic world of financial services it is important for us to tailor advice and solutions to individual needs. Clients need solutions that make them money and preserve their capital and advisors need happy clients with increasing wealth under management. By harnessing the skills of top quality experienced professionals and cutting edge technology, we are able to bring what was previously only available for multi-million dollar clients to a wider reaching client range and we have done this independently.