The very words “Credit
Score” scare most people because
people are scared of the unknown. Seriously,
think back to grade school and ask yourself:
Did anyone ever teach me anything about my credit
score? Answer is NO! Even though your credit
score mandates your entire lifestyle and ability
to finance a home, vehicle, or invest without
capital; Uncle Sam doesn’t think it’s
important! Therefore you have never been taught
unless you have thoroughly researched it on
your own or paid for your degree. The bottom
line is, if you have a low score, you can count
on high rates, high fees, high payments and
rejection. A high credit score can almost guarantee
that you are offered the best rates, lowest
fees and most desirable terms, get your score
up there and any lender rolls out the red carpet.
Understanding how your score is calculated can
help you better understand how to improve your
score.
Your credit score is calculated using a sophisticated
scoring model which takes into account a wide
variety of factors. We have grouped these factors
can into five categories as outlined in the
pie chart below. The percentages in the pie
chart reflect the important of each category
in determining your score.
-
Account payment information
on specific types of accounts (credit cards,
retail accounts, installment loans, finance
company accounts, mortgage, etc.)
-
Number of past due items
on file
-
Presence of adverse public
records (bankruptcy, judgments, suits, liens,
wage attachments, etc.), collection items,
and/or delinquency (past due items)
-
Severity of delinquency (how
long past due)
-
Amount past due on delinquent
accounts or collection items
-
Time since past due items
(delinquency), adverse public records (if
any), or collection items (if any)
- Number of accounts paid as
agreed
-
Amounts owed on accounts
-
Amount owing on specific types
of accounts
-
Lack of a specific type of
balance
-
Number of accounts with balances
-
Proportion of credit lines
used (proportion of balances to total credit
limits on certain types of revolving accounts)
- Proportion of installment
loan amounts still owing (proportion of
balance to original loan amount on certain
types of installment loans)
-
Number of recently opened
accounts, and proportion of accounts that
are recently opened, by type of account
-
Number of recent credit inquiries
-
Time since recent account
opening(s), by type of account
-
Time since credit inquiry(s)
- Re-establishment of positive
credit history following past payment problems
-
Number of (presence, prevalence,
and recent information on) various types
of accounts (credit cards, retail accounts,
installment loans, mortgage, consumer finance
accounts, etc.)
Keep in mind……
-
A score takes into consideration
all these categories of information, not
just one or two.
-
No one piece of information
or factor alone will determine your score.
-
The importance of any factor
depends on the overall information in your
credit report. For some people, a given
factor may be more important than for someone
else with a different credit history. In
addition, as the information in your credit
report changes, so does the importance of
any factor in determining your score. Thus,
it's impossible to say exactly how important
any single factor is in determining your
score - even the levels of importance shown
here are for the general population, and
will be different for different credit profiles.
What's important is the mix of information,
which varies from person to person, and
for any one person over time.
-
Your FICO score only looks
at information in your credit report.
However, lenders look at many things when
making a credit decision including your
income, how long you have worked at your
present job and the kind of credit you are
requesting.
-
Your score considers both
positive and negative information in your
credit report.
- Late payments will lower your
score, but establishing or re-establishing
a good track record of making payments on
time will raise your score.
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