Info on Credit Scores
I'm not entirely sure what section this belongs in, so I'll put it here and a mod can move it to where he sees fit.
I was doing a little continuing ed work the other day and ran across this information that I thought would be useful to some of you young bucks. It's been asked a bizillion times and several of us have tried explaining it, but it's always good to go over it again.
Everyone knows if you have any established credit, you have 3 "scores". They're called different names by each repository, but they are basically a number you are given based on several factors that tend to show your credit worthiness. The higher the number the "better" the credit is supposed to be. There are a lot of little variables that can affect the number(s), but this template is a good way to start figuring out why yours is what it is. I've highlighted some of the more common things you guys have asked before. Enjoy.
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What makes up a Credit Score?
● 35% Payment History, Last payments, Collections, Bankruptcies
● The history is comprised of three components:
1. Recent – the length of time that has lapsed since a delinquency. If a borrower has a late payment report on his/her credit report, initially that delinquency will have a very negative affect on the credit score. As the delinquency ages, it will have a lessening negative effect on the score.
0 – 6 months A very negative effect on the borrower’s credit
7 – 23 months A moderate negative effect on the borrower’s credit
24+ months When a delinquency has low to no effect on the borrower’s credit
2. Frequency – the frequency of delinquencies
3. Severity – How delinquent/late a per has been for 30, 60, 90, 120 days
The combination of these factors together will affect this portion of the score.
● 15% Length of Credit History
1. The months an account has been reviewed or the length of time a borrower has had an account. For example a borrower who has 4 credit cards that have been open for 2 years each the credit score formula evaluates this data as having an 8 year history.
2. Closing an account will not enhance a borrower’s score. Instead, it will negatively affect the borrower’s “credit history” and reduce the scores.
● 30% Debt Balance versus High Credit Limit
1. 50% debt balance vs. the high credit limit is a moderate negative to the score
2. 75% debt balance vs. the high credit limit is a stronger negative to the score
3. Debt balances below 33% of its high credit limit positively affect a credit score.
4. Reducing balances below the 50%
● 10% Types of Trades
1. Credit score formula likes to see a mix of the types of tradelines a person has.
2. Finance company credit cards are not viewed favorable.
● 10% Inquiries
1. 85 points can be earned or lost from inquires.
2. Credit score model only looks at inquires from the past 12 months and allows for 7-10 inquires for that 12 month period.
3. When a score is hit for inquires, it is hit 5-1 points each.
4. Credit score model has been programmed to recognize mortgage related pulls and takes into account there can be several in a short period.
5. The model has been altered to allow a 30 day buffer for re-pulls of mortgage related inquires.
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Originally Posted by tony
