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Credit card and loan companies use a standard to determine who will be their possible clients. It is risky for these companies to let all people borrow unlimited money from them because each person differs in terms of his capacity and capability to pay the kind of loan they apply for.

Lenders will use the person’s credit score to determine the total amount that the person can borrow. It is also useful in recommending how much the company will charge based on the cost of borrowing the money—the interest rates.

Credit score has been a product of the Fair Isaac Company’s goal which is to achieve an over-all and general score for the individual with regard to his basic credit report and history.

The credit score involves several variables including the person’s loan account and records in different companies, mortgages, type of credit card accounts, delayed or missed payments over time.

Moreover, credit scores have its own range based on Fair Isaac. The range of the score is from 300 to 850. If the credit score of the person is high, the person can borrow more money from lending institutions with lower costs of borrowing. However, people who get lower credit scores will be allowed to borrow only a limited amount of loan depending on the lending institution’s policy.

Credit scores are computed based on certain determinants. These factors can be broken down in percentages. The first 35 percent of an individual’s credit score is based on his payment records. Lenders and credit companies often submit these details to the credit bureau. Details like deferred payments on certain bills or paying your bills on time are reflected in this share. Moreover, simple unpaid bills are included like the person’s medical fines, incomplete payments on road tickets and even his existing accountabilities in school.

The next 30 percent is the person’s past and current loan in lending institutions. People who exhaust all the balances on their credit cards are often given lower scores. This percentage computes the amount you borrowed on credit card companies which are then compared with existing available funds that these individuals have.

Fifteen (15) percent is directed on the person’s credit history. Based on Isaac’s formula, they will determine the entire person’s account. The age of the account and how often the person uses these are important determinants for this percentage. People who have few accounts which are standing for a longer period of time will generally have better credit score.

The other 10 percent is computed based on how many account the person have opened and if the person have existing records detailing the person’s wish or interest to have another new account despite of having an existing credit account.

The last 10 percent is aimed to determine the capacity of the person to pay an account. This is based on the type of credit account the person is using. Person who pays a fixed amount is generally seen as a good payer compared with those who have other types of accounts like credit accounts and revolving debts.

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