Posted on October 22, 2009 at 3:03 am
In the past one year, credit score requirements have gone through unprecedented changes with the economical slump. Banks as well as other lenders are focusing on ways to stay away from risky loans as much as possible.
Credit score is made up of a number of elements. According to Money Management International, a non-profit credit counseling services organization, 35% of the credit score depends on the individual’s payment history. Another 30% depends on the amount of credit which can deteriorate when the individual touches 30% of the credit card limit. Therefore, it is advisable that you refrain from withdrawing the maximum limit on your credit card.
The credit counseling notes that 15% of the score depends on the amount of credit and the duration for which the credit is held. Therefore, opening new credit accounts can impact your credit score negatively as the payment history is necessary for evaluation for rating companies. Besides, 10% of the credit score is based on how often the person request for a new credit. Another 10 percent of the credit score counts on the types of credit that a person holds, which includes credit card, student loans,etc. Therefore, it is advisable that the debtors keep the portfolio of their loans diversified to have a good credit score.
Credit scoring system that most companies rely on is developed by Fair Isaac Corporation and is also known as FICO score. The score, according to this system, ranges from 300 to 900. Lenders now require that the individual has a credit score between 720 to 750 to get the loan easily. In the same time last year a score of 700 was considered good for lending credit. According to the credit counseling organization, change have occurred not only because of the downfall in the economy but also because of the change in regulation by the new government. President Barack Obama has signed the Credit Card Accountability, Responsibility and Discovery act which was effective partly in May 2009 and will be implemented partly in February 2010. The act poses limitations on the term and interest rate adjustments on new and existing consumers by the issuers. Moreover, it bars the credit card issuers from sending pre approved credit card offers for students under 21 years.
Thus, the credit card issuers and lenders are reassessing the terms for sanctioning loans. This has seen a surge in interest rates and even decline in credit lines in some cases.
Source: Money Matters