Gregg Pennington asked:


When you apply for credit, whether for a mortgage, an auto loan, or a credit card, your credit score will determine whether or not you can secure financing, and what type of interest rate you can get. While you probably have at least some idea of how good or bad your credit is, it is important to understand your credit score and how it is calculated.

A credit score is a three digit number that ranges from 300 to 850. Each of the three major credit bureaus use this rating system that was devised by the Fair Isaac corporation - commonly called a FICO score. Your FICO score is calculated by measuring three distinct aspects of your credit.

1.A third of the score is based on your payment history. If you have defaulted on one or more loans, or been more than thirty days late making payments on your credit accounts, your credit score will be adversely affected.

2.The next portion of your credit score is determined by your credit to debt ratio. If you have a number of credit accounts close to being maxed out, or if your total debt is too great, this part of your score will suffer. Conversely, if you keep your credit balances reasonably low, your score will be higher.

3.The final part of your credit score takes three separate factors into account: the length of your credit history, the amount of credit for which you have recently applied , and the type of debt you have. Of the three, the length of your credit history holds the most weight. If you have established a long history of repaying your debts on time, you will be looked upon as less of a credit risk. Another aspect of your credit score is the number of recent applications you have. The greater the number, the lower the score. Finally, the types of credit you carry will affect your credit score. A credit card from a bank would have a more positive effect on your score than would a store credit card. Applying for credit with a finance company could label you a higher credit risk, and may be seen as a last resort for someone who could not get a bank card.

Once your score has been determined and made available to prospective lenders, it is often the only factor considered in determining your eligibility for credit and the interest rate you will receive. A higher FICO score will translate into savings when you apply for credit. A lower score may increase your interest rate which may cause you to have to borrow more money than you would have otherwise.

Also, information provided by credit reporting companies is not always accurate. You should acquire a copy of your credit report for inconsistencies and inaccurate items. If you find any questionable items on your credit report, you have the right to dispute them and possibly have them removed.

Once you understand the effect that debt and use of credit has on your credit score, you can devise a plan to make any necessary repairs to your credit. As your credit score improves, you will pay less when you borrow money, and you will find more and more lenders eager to do business with you.

Jim Kemish asked:


When did credit scoring begin?

All of your credit repair efforts are designed to improve your credit scores. There may be no more important number in your life. But where did credit scoring start? The FICO credit scoring model was created in the 1950s by two Stanford University researchers, Bill Fair and Earl Isaac. Automated FICO scores were first made available in 1989 and initially utilized by credit card issuers. But credit scores really became part of all of our lives in 1995 when Fannie Mae and Freddie Mac, the mortgage giants, asked lenders to incorporate the use of FICO credit scores in their approval decisions. The rest is history. Fair Isaac Corp. trades on the New York Stock Exchange under the Symbol FIC, and reported revenues of over 800 million dollars in 2007.

Why are lenders scores different from the ones I bought online?

Lenders purchase FICO scores from the three credit bureaus. But with the exception of Equifax, the credit bureaus do not sell FICO scores to consumers. The scores sold by TransUnion and Experian are their own proprietary scores. These scores may vary significantly from your FICO scores. This can be very confusing for anyone in a credit repair program who wishes to monitor their credit scores. If you are working on credit repair and want relevant lender FICO scores you can purchase them at myfico.com.

Why do I have three credit scores?

The three major credit bureaus compile data on consumers, and sell credit reports and a wide variety of marketing information based on this data. The three credit bureaus compete with each other, but because lenders have adopted the practice of minimizing risk by reviewing all three bureaus, the three bureaus are perceived as being equally important. Each bureau licenses the use of the FICO scoring software from Fair Isaac and Company and applies it to their database to produce a FICO score. All three credit bureaus must be addressed in your credit repair effort.

Why are my three credit scores different?

There are three reasons for the differences in your scores. First, creditors do not necessarily report to all three bureaus – if you examine your reports you will probably notice many differences in the content. Second, the timing of the reporting of information by each bureau is different – if you used a credit card recently your new balance is likely to be reported by each bureau at different times. And third, Fair Isaac modifies the software from time to time, and the bureaus do not all implement the new version concurrently. It is pertinent to your credit repair effort to know that when correcting reporting errors the information on each bureau may be unique.

I’ve heard that there are two types of inquiries, what are they?

There are two types of inquiries. Hard inquiries will affect your credit scores, and occur when you apply for new credit. Soft inquiries will not affect your credit score, and are triggered most often by three different events; first, when you request your own credit report; second, when prospective lenders review your credit before offering you pre-approved credit; and lastly, when a current creditor conducts a periodic review of an existing account. Because inquiries have such a small impact on your scores, they are often addressed last in any credit repair effort.

How much will inquiries hurt my credit scores?

Soft inquiries, as mentioned, have no impact on your credit score. Hard inquiries are likely to lower your scores between 1 point and 5 points. Credit repair efforts revolve around your credit scores, and it is useful to know that the FICO scoring model considers everything on your report all together. The affect of an inquiry, like other information on your report, will vary depending on everything else in your file. The more credit you have, and the more established it is, the less of an impact a single inquiry will have.

How can I increase my scores?

The categories of data that will impact your scores are your payment history, your account balances, the length of your credit history, the balance of credit types, and the amount of new credit you have. Try to not make any late payments from this point forward. You should also attempt to pay your revolving balances down. And if you don’t have any open accounts, start the rebuilding process right away by opening two secured credit cards; your credit repair effort cannot succeed without open accounts, so take action today.

How much do my credit scores really matter?

Your credit repair effort should focus on improving your credit scores. Every loan you apply for will be underwritten based on your credit scores. Insurance companies are not allowed to consider your credit scores when pricing life and health insurance, but property insurers will consider your credit scores and may even deny you coverage if they don’t like what they see. In addition, prospective employers and landlords are likely to check your credit. Make sure your scores are where they should be when you need them. If you have credit issues, begin your credit repair effort immediately.

Copyright © 2008 James W. Kemish. All Content. All Rights Reserved.

Michael Rasco asked:


A person’s credit score, often referred to as their “FICO” score, is an important tool that lenders use to help determine the creditworthiness of a potential borrower. If you want to make a large purchase, such as a house, for which you will need financing, you want your score to be as high as possible. To understand how to improve your overall credit rating, it is imperative you understand what factors influence your FICO score.

Payment History

Do you pay your bills on time? Most creditors, lenders, and service providers will charge a fee if you do not. Obviously, the biggest thing wrong with that is the egregious waste of money. What is worse in the long term is that after 30 days of nonpayment, the lender will likely report you to one of the major credit bureaus. (In the U.S., there are three such credit bureaus: Experian, Equifax, and TransUnion.) Considering that thirty-five percent of your credit score is based on payment history, it becomes clear how important it is to keep up with your financial obligations. No other single factor has that much influence on your FICO score.

Debt to Total Credit

The ratio of your outstanding debt to the total of your credit lines and loan amounts counts for thirty percent of your credit score. For example, if you have a credit card with a limit of $5000, and you owe $4000, your debt to total credit ratio is eighty percent. After paying down $3000 of the principle, your outstanding balance is $1000, giving you a ratio of twenty percent, which is much better.

If your outstanding balance occupies seventy percent or more of your total credit line, it is viewed negatively by the credit bureaus. If the ratio is in the range of thirty to seventy percent, it is doing little or no harm to your credit score; however, it certainly is not helping your credit score. Bring your debt to less than thirty percent of your total available credit, and your FICO score will very likely improve. Getting balances and, therefore, debt to credit ratios down to zero is clearly a desirable goal. It is important to remember, though, that unused credit will not help your credit score. We will explore that topic a bit later.

Length of Credit History

Fifteen percent of your FICO score is based on how long you have had some type of credit. The perception is that someone who has owned a credit card for twenty years is more likely to be responsible and credit worthy than a young person right out of high school who has the same credit card. Although this is true generally, it is certainly not always the case; that is why it is weighted significantly less than payment history and the debt to credit ratio.

New Credit

If you have one credit card for ten years, and then you apply for and receive three more credit cards, expect your credit score to come down a bit. A long-established credit account is considered more stable than a new account. Of course, how your credit score reacts to new credit is also affected by other factors. A new card will increase your total credit line, thereby reducing your debt to credit ratio. An old credit account with a poor payment history is worse than a new account in good standing. All things being equal, new credit is not bad, but old credit is very good. New credit accounts for ten percent of your FICO score.

Unused credit is considered very much like new credit. If you can use a credit card every month, and pay off the balance in full every month, you will see your credit score increase steadily. This is difficult for many people, because of the temptation to overuse the credit card. Responsibility and restraint are critical when using this technique. Remember that, even though unused credit is not very good, it is not at all bad; overused credit is.

Types of Credit Used

The remaining ten percent of your credit score is based on what type of credit you have used. A retail store credit card is not very good. Too many of them could be bad for your credit score, in fact. Small loans, if paid off in a timely manner, have a positive effect. Major credit cards are even better. Big ticket items like auto loans and home mortgages are very good, once again if you make the payments on time.

These five areas are the basis for your FICO score. Armed with this knowledge, you are better equipped to make the changes necessary to improve your credit score. An overwhelming majority of lenders will use your FICO score when considering your application. Put yourself in position to get the best possible deal. Read this article again, and then get started!

William Brooks asked:


You are shocked when your loan is denied, or maybe you were approved, but the interest rate is much higher than you anticipated. How can that be you say? My credit score is good, I know I checked. Maybe it’s not as good as you think. It all depends on there you got it and what kind of credit score it is.

The fact is there are several different credit scoring methods. Credit scores calculated from the same credit reports can differ substantially from credit scoring method to credit scoring method. So how can you ever know what your credit score really is? Well, luckily, 75% percent of lenders use FICO scores exclusively and you can purchase FICO scores yourself–you just have to know where to go. (www.myfico.com)

FICO credit scoring is a numeric method of scoring your credit worthiness developed by Fair Isaac and Company. Your credit score is a number between 300 and 850 that tells creditors how likely you are to pay your bills. The higher the number, the better it looks to potential lenders and creditors.

The three major credit bureaus each have their own version of the FICO score: Equifax uses the Beacon system, TransUnion uses the Empirica system, and Experian uses the Experian/Fair Isaac system. Despite each credit bureaus’ use of their own versions, all systems are based the original Fair Isaac FICO scoring method, so each credit score calculated with these systems are generally called FICO scores. However, although most lenders do use FICO scoring, some lenders may have their own scoring methods.

There is only one place where you can get your FICO score from all three bureaus and that is at www.myfico.com. If you order your credit score from anywhere else, again be aware that these scores are “FAKOs” (or “fake”) and can differ considerably from your FICO credit scores.

Adding to the confusion is the credit bureaus themselves. Recently, Experian revealed that the national average credit score of its consumers is 678. This is very misleading to the average consumer. When you buy your credit report and score directly from Experians website, you are getting what they call the “PLUS Score,” which is NOT a FICO score, and is NOT used by lenders anywhere. (Equifax is the exception–you can buy your FICO score directly from them at their website; however, the only place to get all three scores together is at www.myfico.com.) The 678 PLUS Score reported by Experian is actually the average of consumers’ PLUS Scores, not their FICO Scores.

Clearly, the PLUS Score (and all Non-FICO scores) are useless. Not only that, but such hype misleads consumers into purchasing their PLUS Score thinking that they are getting the same credit score that their lender will use. Non-FICO scores are worthless not matter what the credit bureaus or any website selling non-FICO scores claim. Even a few points difference in your credit score can mean confronting the reality of the loss of thousands of dollars out of youSr pocket–a loss that you probably didn’t plan for. The next time you want the most accurate credit score available, do yourself a favor and get the industry standard: the FICO credit score.