Credit Scoring

Credit Scoring

      Your credit score is a seven-year record of your credit use including your borrowing history. In most lending situations, the lender looks basically just at your credit score. Most use the score calculated by Fair, Isaac, the most popular of the credit scorers. The exact score can range from 300-900 The higher the score, the better. If your credit score is above 720 it is considered an average credit score.

     Here is the approximate breakdown on how it is determined.

• Thirty five percent of your score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. Things that affect it are late bill payments, how many were sent out for collection, any bankruptcies, etc. The more recent any negatives in your scoring, the more they affect your score.

• Thirty percent of your score is based on any debt that is outstanding. This includes how much you still owe on your house or car etc. How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 30% or less of their limits.

• Fifteen percent of the score is based on the length of time you've had credit. The longer you have had credit, the better because more information about your past payment history gives a more accurate prediction of your future actions.

• Ten percent of the score is based on the number of inquiries on your report.

     If you've applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven't used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.

• Ten percent of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn't have. These actually come more into play if there isn't as much other information on your credit report on which to base the score.