Credit Score Info

Now more than ever, lenders are making credit decisions based heavily on a borrower’s credit score. What is a credit score and how is it determined? When people refer to a credit score, they are typically referring to a score based upon the Fair Isaacs Company analysis model. The unique variables and weightings of their scoring model are not available to the public. This proprietary model is marketed through the three major credit reporting bureaus, Experian, Trans Union and Equifax. A credit score is a measurement of how well an individual has managed their finances and is presumed to have predictive properties in regards to new credit requests. The scores range from a low of 150 to a high of 934 depending on the bureau. A higher score indicates a more responsible use of credit and is viewed more favorably by lenders. Credit scores can change as new information is gathered on an individual’s borrowing and repayment patterns. According to a Consumer Federation of America source, below are the approximate weights used by Fair Isaacs when calculating a credit score. 1. Your payment history – about 35% of a FICO score Have you paid your credit accounts on time? Late payments, bankruptcies, and other negative items can hurt your credit score. But a solid record of on-time payments helps your score. 2. How much you owe – about 30% of a FICO score FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be. 3. Length of your credit history – about 15% of a FICO score A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible credit management. 4. New credit – about 10% of a FICO score If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score. 5. Other factors – about 10% of a FICO score Several minor factors also can influence your score. For example, having a mix of credit types on your credit report – credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit – is normal for people with longer credit histories and can add slightly to their scores. Here are some recommendations to help improve your score: • Pay your bills on time. If you fall behind, get current and stay current. • Borrow only as much as you need and pay it off as quickly as you can. • Try to pay off your credit cards monthly. If that isn’t possible, try to maintain as small a balance as you can. A significant factor in calculating a credit score is the outstanding balance on a credit card compared to the credit limit. • Make it a priority to annually review your credit report. Credit reports may contain errors, especially if you share a name with a relative (e.g. Thomas Paine Sr. and Thomas Paine Jr.). If you find an error, contact both the creditor and the reporting bureau. Regular review can also alert you to potential identity theft. And as a final note, Congress established a means to make it easier for consumers to get their credit reports and credit scores from the three national credit reporting agencies. Web:www.annualcreditreport.com Phone: 1 877 322 8228 U.S. Mail: Annual Credit Report Request Service P. O. Box 105281 Atlanta, GA 30348-5281