 Everything from buying a car, getting a loan, or obtaining
insurance is controlled by our credit score. Each of the
three major credit bureaus uses a scoring method for rating
their consumers.
Equifax calls it a
BEACON Score,
Trans
Union the EMPIRICA Score and Experian the FAIR ISAAC, or
FICO.
These scores range from a low
of 300 to a high of 850. Our average client has a score from
the mid-500 to the mid-600 level. Less than half a percent
of the population has a score above 800. The following is a
list of what the credit bureaus base a client's score on:
-
35% of a credit score is
based on bill paying habits. A timely payment
history will maintain a high score, but any late
payments will subtract points. A string of 30-day
late payments is worse than one 60-day late.
- 30% of
the score is derived from the amount owed in
comparison to the available credit limit. Keep
balances at or below 30% of the available credit
limit for maximum points.
- 15% of
your score is based on length of credit history.
Keeping an old card even at a higher rate could help
the score. Points are given to those who use credit
cards actively and responsibly.
- 10% is
based on the mixture of types of credit. The most
points are gained from the combination of a
mortgage, car or school loan (installment) and
credit card (revolving) accounts is good.
- 10% is
founded from the pursuit for new credit. Looking
for a mortgage loan will not cost you, but applying
for new credit cards every month will.
A majority of lenders use
FICO scores as the method to estimate an applicant's credit
risk. People with high FICO scores are likely to repay
loans and credit cards more consistently than those with low
FICO scores. Although FICO scores are remarkably
predictive, no one can predict with certainty whether or not
an applicant will repay a credit account.
Accurate negative information
can generally be reported for 7 years, but there
are exceptions:
-
Bankruptcy information
can be reported for 10 years.
-
Information reported as part of an application for a
job with a salary of more than $75,000 has no time
limitation.
-
Information reported because of an application for
more than $150,000 worth of credit or life insurance
has no time limitation.
-
Information concerning a lawsuit or a judgment can
be reported for seven years or until the statute of
limitations runs out, whichever is longer.
- Default
information concerning U.S. Government insured or
guaranteed student loans can be reported for seven
years after certain guarantor actions.
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