Credit Report - How Your Credit Score is Determined

Posted on August 13th, 2007 in All Articles, Credit History by loaninfo


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- How Your is Determined



Written by: Charles Essmeier

Most consumers are aware that they have something known as a that is used to determine whether or not they would qualify for a loan. Fewer are familiar with the FICO score, a creation of the Fair, Isaac, and Co. which distills their entire down to a three-digit numeral. What, exactly, is this score? How is it compiled? Can anything be done to improve it?

The FICO is used by all three major credit bureaus - Experian, Trans Union and Equifax. They are the companies that keep track of the credit and lending transactions of millions of Americans. The score is used to provide, in a nutshell, a figure that represents the credit-worthiness of a consumer. That score, which ranges from a low of 300 to a high of 850, is used in many ways by es and employers. The score is used by insurance companies to set rates, landlords to establish security deposits, and even prospective employers to determine whether hiring someone is a good risk. Despite the importance of s in their lives, few Americans understand how it works.

The score is determined by a variety of factors, each of which makes up a portion of the score:

  • Approximately one third of the score represents the individual’s payment history. Previous loans, and the ability to pay them are shown in this portion of the score. Both late payments and failure to pay at all affect this portion of the score. Those who have paid all of his or her loans on time will obtain the highest scores.



  • Another third of the score is determined by current s, and the ratio of to the amount of available credit. Keeping all of your s at or near their limits will hurt this portion of the score. This seems obvious; those who are already near their credit limits may have trouble paying back any future loans.



  • The remaining third of the is determined by three factors - length of , recent credit applications, and the types of overall credit in the individual’s . The length of the is the most significant item, as lenders are more suspicious of borrowers who have not established a pattern of borrowing and repaying loans. A history of repaid loans goes a long way towards fortifying this portion of the score. Recent credit applications, particularly a lot of them, may suggest that the individual is desperate to borrow more money and may have a problem. Similarly, the types of credit demonstrate spending patterns and reliability. A containing all s may be seen as more risky than one with a few s, a repaid auto loan and an ongoing .



    • By seeing how a is compiled, consumers can take action to keep their scores healthy. A good score helps borrower obtain loans at better interest rates, and that is something that everyone can appreciate.

    About the Author

    ©Copyright 2005 by Retro Marketing. debt.com/"> Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-.com, a site devoted to consolidation and credit counseling, and HomeEquityHelp.com, a site devoted to information regarding s and lending .


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