Credit Record

So what makes you credit worthy and why are some people far more credit worthy than others?

Banks, retail stores and most other credit issuers have increasingly come to rely on what's known as "risk-based credit scoring" to determine your credit worthiness. These scores are supposed to measure how likely you are to repay a debt - and are a key factor in determining if you can get credit, and at what cost. One of the technologies they use, for capturing and assessing these scores, is known as Fair Isaac's Fair Isaac's software calculates your score on the basis of data collected in five basic categories:

While the Fair Isaac developers will not reveal the exact formula used in this software, they have revealed how each of these factors is weighted and how you might improve your score.

Payment History

This accounts for about 35% of total score. Your payment history on credit cards, retail accounts at stores, instalment loans and mortgages are all recorded. Specifically, how on-time or late your payments were, how much was owed, how many late payments and how recently they occurred are all measured.

Amounts Owed

These account for about 30% of your total score. While owing a lot of money on many accounts might indicate that you are overextended, your score will not necessarily be harmed by large outstanding amounts. What is more important is how many accounts have balances and how much of the total credit line is being used on credit cards and other "revolving credit" accounts. The short-term and volatile use of revolving credit may indicate a lack of financial discipline.

Length of Credit History

Accounts for about 15% of total score. So if you are trying to borrow for the first time and are trying to establish a credit record, you have few options to improve your score here, since how long your credit accounts have been established is what actually counts.

New Credit

New credit is about 10% of the total score. Here, they look at how many new accounts you have established, how long it has been since you opened a new account and how many recent requests for your credit have been made by credit reporting agencies. Until recently, your score would have gone down if you made a number of applications for credit cards or mortgages within a short period of time - even if all you were doing was shopping around for the best deal. Now, they lump together inquiries made within a short period of time as one inquiry. So, if you're shopping around, make your inquiries all within a few days if you can.

Types of Credit

This used makes up the remaining 10% of your score. Here they are simply looking at long-term credit like home bonds, medium-term credit like car and furniture finance and short-term credit like department store and bank credit cards.