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Credit Issues How Credit Scoring Works: Lenders use a credit score to objectively assess the credit risk of a loan applicant. Scores can range from 350 (high risk) to 950 (low risk), which helps a lender assess your ability to repay the loan. The the most commonly used credit scores are FICO scores. FICO scores were developed by Fair Isaac & Company, Inc. for each of the three credit reporting agencies listed at the bottom of this page. Credit scores only consider the information contained in your credit profile. They do not consider income, savings, down payment amount or demographic factors like gender, race, nationality or marital status. Previous late payments, current amount of debt, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Credit scoring is a statistical method based on the following percentages:
Credit reporting agencies require that you have one account which has been open for six months or greater. They also look for at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. The most important factor for a good credit score is paying your bills on time. This includes even small balances on credit cards. Also, it is better to keep balances low on credit cards and other "revolving credit", apply for new credit accounts only as needed, and pay off debt rather than moving it around. In addition, it may not help to close unused cards in order to raise your score quickly. Owing the same amount but having fewer open accounts may lower your score. While shopping for a mortgage or auto loan, multiple lenders may request your credit report. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, it counts all mortgage and auto inquiries older than 30 days as just one inquiry when determining your score. Is the score treated the same for all kinds of loans? What else affects my chances for qualifying for a loan? Credit Reporting Agencies: Credit Reporting Agencies gather information about your credit history from public records, your creditors, etc. As allowed by law, creditors may contact these agencies to check your credit when you apply for a mortgage loan or additional credit. The credit reporting agencies are: Equifax Experian TransUnion |
