Credit Scores: How Credit Scores are Determined
by Lisa Phillips
by Lisa Phillips
| Copyright RebuildCreditScores 2010 All Rights Reserved |
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The three major credit bureaus do not always use the same scoring models. This is why a
consumer will have a different credit score for each bureau. Check your credit score online for
fastest results. The most accurate credit scores will come from Equifax or myfico.
Many financial advisors will tell you to check your credit reports and scores at least once a
year. Once a year is not enough. Credit scores can change daily as new data is gathered
about you and your bill paying habits, amount of debt you carry and new credit you apply for
is monitored 24 hours a day. To manage your credit and keep an eye on your credit scores
get a 30-Day Free Trial of Score Watch.
What Determines Your Credit Score
While credit scoring companies such as Fair Isaac Corporation (FICO) will not reveal exactly
how credit scores are computed, there are a five major factors which measure into the
computation process. No one piece of information by itself determines your score.
Payment History (35% of your score)
Amount of Debt Owed (30% of your score)
Length of Credit History (15% of your score)
Types of Credit (10% of your score)
New Credit (10% of your score)
All of these factors determine your credit score. Points are awarded or deducted for each
factor. A score of 720 out of a possible 850 is considered a good credit score. The best
interest rates are afforded to consumers with credit scores of 760 and above.
consumer will have a different credit score for each bureau. Check your credit score online for
fastest results. The most accurate credit scores will come from Equifax or myfico.
Many financial advisors will tell you to check your credit reports and scores at least once a
year. Once a year is not enough. Credit scores can change daily as new data is gathered
about you and your bill paying habits, amount of debt you carry and new credit you apply for
is monitored 24 hours a day. To manage your credit and keep an eye on your credit scores
get a 30-Day Free Trial of Score Watch.
What Determines Your Credit Score
While credit scoring companies such as Fair Isaac Corporation (FICO) will not reveal exactly
how credit scores are computed, there are a five major factors which measure into the
computation process. No one piece of information by itself determines your score.
Payment History (35% of your score)
- Information from lenders, banks, credit card issuers, department store accounts, car
loans, finance companies, mortgages, etc., about how timely you make payments.
- Accounts in collection or past due.
- Information in public records, such as bankruptcy, judgments, liens, wage
garnishments, or child support orders.
- Basically how timely you pay your bills, especially recent information is heavily weighted.
Amount of Debt Owed (30% of your score)
- How much you owe on all your accounts.
- How much credit you have available to use.
- As a rule you should only use 30% of your available credit.
- If you need to raise your scores quickly try paying down your balances to 30% of your
available credit limit. The good thing about paying down your credit account to increase
your scores is that it works whether the account balance is $5000 or $500.
Length of Credit History (15% of your score)
- How long ago you opened and used your accounts.
- How recently you applied for new credit.
- Recent good credit history following past payment problems.
- Never close old accounts. Closing old accounts deducts from your “length of credit
history” and lenders always look at how long you have utilized credit. The older the
credit account, the better the score.
Types of Credit (10% of your score)
- The different types credit accounts you have.
- The total number of accounts you have.
- Your mix of credit should include a mortgage, unsecured credit and revolving credit.
New Credit (10% of your score)
- Limit the number of credit applications you filled out.
- Applying for lots of credit will bring your score down. Lenders may interpret your
applying for lots of credit as a sign that you are experiencing financial difficulties.
All of these factors determine your credit score. Points are awarded or deducted for each
factor. A score of 720 out of a possible 850 is considered a good credit score. The best
interest rates are afforded to consumers with credit scores of 760 and above.
Disputes
Tips for Disputing Negative information in your
Credit Files
Debt Validation
How to halt the collection process by requesting
a collection agency to validate your debt
Collection Agencies
Information on Effectively Dealing with Collection
Agencies
Get Deletions
Request deletions when paying a negative
account. Paid collections do not improve your
credit scores.
Tips for Disputing Negative information in your
Credit Files
Debt Validation
How to halt the collection process by requesting
a collection agency to validate your debt
Collection Agencies
Information on Effectively Dealing with Collection
Agencies
Get Deletions
Request deletions when paying a negative
account. Paid collections do not improve your
credit scores.
More Resources
A credit score is a number based on the statistical analysis of a consumer's credit reports,
usually between 300 and 850. A good credit score is considered to be between 680 to 750. Any
score above 760 is excellent. The average credit score is 678. The higher a credit score, the
more likely a consumer will be approved for credit and the interest rates will be lower. In 2008
banks and creditors tightened their underwriting standards and now is the time to rebuild your
FICO Scores/Reports.
usually between 300 and 850. A good credit score is considered to be between 680 to 750. Any
score above 760 is excellent. The average credit score is 678. The higher a credit score, the
more likely a consumer will be approved for credit and the interest rates will be lower. In 2008
banks and creditors tightened their underwriting standards and now is the time to rebuild your
FICO Scores/Reports.
Related Topics:
Why Credit Scores Are Important
Credit scores are used by lenders and credit card companies to predict if you will be timely in
your payments and if you will pay your loan off. Most lenders now use your credit score as the
number one determinant in their decision to grant credit. It is imperative that you know your
credit scores before you apply for any credit.
Credit scores are used by lenders and credit card companies to predict if you will be timely in
your payments and if you will pay your loan off. Most lenders now use your credit score as the
number one determinant in their decision to grant credit. It is imperative that you know your
credit scores before you apply for any credit.
Since everyone else seems to know your credit score,
you must be familiar with it also. Don't be the last to
know. Credit scores are often used to determine your
"credit worthiness" by the following:
you must be familiar with it also. Don't be the last to
know. Credit scores are often used to determine your
"credit worthiness" by the following:
- Credit Card Issuers
- Telephone Companies
- Insurance Companies
- Cell Phone Providers
- Cable Companies
- Landlords
- Utility Companies
- Employers
- Some Banks when you open a
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