Credit Score Components : A high level view

Lenders compare the credit score of the loan applicants in order to decide the person who qualifies for the loan. Credit reference agencies compute the credit score of a person after gathering information on different subjects. The information is mainly divided into five sets and each set has a percentage which represents its weightage in final computation of credit score.

The five components that are known to play an important role in your credit score are:
(1) History of Payments - 30%,
(2) Owed Amount - 30%,
(3) Nature or Kinds of Credit Currently in Use - 10%
(4) Latest Credit Inquiries - 10%
(5) Duration of Credit Record - 15%

The credit score is expressed in a three figure number ranging from 300 to 850 and a high credit score means a better probability of achieving a low interest rate for the loan. The main purpose of credit score system is to help the lenders to take the decision about loan applicants but some consumers fear that an unjust rating will affect their business and hence, financial transactions.

Different companies have their own rating system to serve their consumers in a more better and efficient way. Some of these strategies include:

1. Forming a Credit Assistance Team- This is group of people who will help the consumers through toll-free numbers as people would like to know the effect of their credit records on their applications for loans and mortgage. Another responsibility of the team is to refer the consumers to knowledgeable people who can help them in their credit score problems.

2. Revising a New Method in Credit Scoring- They should try to simplify the rating system. It is easier to use nine variables instead of sixteen and so, they should try to make a algorithm to simply the rating system.

3. They will create some rating system or some program for people who don't have a credit record to uplift their credit ratings in order to help them.

These credit reference agencies will surely make a difference to the lending world if they continue their study on the needs of the consumers and keep improving their rating system