Credit Scores have been around since the late 1950's. Scores are based on data derived from your credit history and payment patterns. This information is maintained on file with the three major credit repositories, Equifax, Experian, and TransUnion. Statistical models that measure hundreds of factors are assigned point values that indicate the likelihood of repayment of your debt. The resulting score is a "snapshot" that sums up your past payment performance and current credit usage. Because these scores are a composite of all your credit information, no single factor - like a bankruptcy or late payment - will be the sole cause of a low score.

When developing a credit score, the repository analyzes credit data on millions of consumers to determine patterns that forecast risk. Typically scores range from 400 - 900, with a higher score indicating a greater likelihood of repayment. It is important to note that scoring models DO NOT consider race, gender, religion, marital status, income, nationality, address, employment status, position or title, length of time of the job, sexual preferences, or interest rates being charged on a particular credit account you might have.

Scoring models do analyze all the information stored in the bureaus credit file such as:

35% of Scores Weight - Past performance. The fewer late payments, judgment etc., the higher the score. Recent late pays occurring within the past 24 months are more indicative of default. A 30 day late today will have a greater impact on score than a bankruptcy 5 years ago with clean credit since.

30% of Scores Weight - Credit Utilization - Low balances on a number of accounts is better than high balances on a few. Balances higher than 30% of credit limit will have a significant impact on score. Too many revolving accounts can be detrimental.

15 % of Scores Weight - Credit History - Age of accounts listed. The longer accounts are open the better the score. Opening new accounts and closing older ones will negatively impact the credit score.

10% of Scores Weight - Types of Credit - Finance Company accounts will score lower than Bank loans or department store lines

10% of Scores Weight - Inquiries - Looking for new credit can mean a higher risk if, for example, several credit cards are applied for within a short period of time and other existing accounts are "maxed out".

WHAT IMPROVES A CREDIT SCORE

Unfortunately there is no magic formula. Scores will improve as the overall credit picture improves. The applicant SHOULD pay down balances on revolving accounts to less than 30% of the available credit line.

If there are errors on your credit report, you must write the repository advising them of the misinformation. The Fair Credit Reporting Act gives the repository 5 days to notify the creditor of a dispute and request an investigation. Within 30 days, the creditor MUST report back to the repository regarding whether the disputed account entry should be modified, deleted, or remain. If there is no response from the creditor within the 30 days, then the repository must remove the item from the credit file. If there is any change to your credit file, the repository must notify you within 5 days of any change.

With credit scoring playing such a huge part of mortgage lending decisions, it is not enough for a consumer to only shop for best rates and tees any more. A Loan Officer who has the experience of dealing with the individual repository's can help resolve any credit problems that might exist, and maybe make the difference between getting an "A" quality interest rate and fee and a "B/C" higher risk interest rate and fee.
If you have any questions regarding credit or to clean up items or mistakes on your credit report call all three bureaus toll free:

Equifax: 1-800-378-2732
Experian: 1-800-422-4879
Trans Union: 1-800-888-4213