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What’s in a number? – Understanding your credit score

Posted by Melinda Dionne | Oct 05, 2011 | 0 Comments

What is a credit score?

A credit score is a number, based on a snapshot of your credit report at a particular point in time, which summarizes your credit risk and helps a lender evaluate your credit report. The most widely used credit scores are FICO® scores created by FICO (Fair Isaac Corporation). The FICO® score range is 300-850®.

What is in a FICO® score?

There are five main categories of information that FICO® scores evaluate. These are Payment History, Amounts Owed, Length of Credit History, New Credit, and Types of Credit in Use.

Approximately 35% of your FICO® score is based on your Payment History. This category includes payment information on credit cards, retail accounts, installment loans, finance company accounts and mortgage loans; public records of events such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments; details on late or missed payments, also known as delinquencies; and accounts showing no late payments.

Approximately 30% of your FICO® score is based on Amounts Owed. This category includes the overall amount you owe, the amount you owe on specific types of accounts such as credit cards and installment loans, whether you are showing a balance on certain types of accounts, how many accounts have balances, how much of the total credit line is being used on credit cards and other revolving credit accounts, and how much is still owed on installment loans compared to the original loan amount.

Approximately 15% of your FICO® score is based on Length of Credit History. This category includes how long your credit accounts have been established, how long specific credit accounts have been established, and how long it has been since you used certain accounts.

Approximately 10% of your FICO® score is based on New Credit. This category includes how many new accounts you have by type of account, how long it has been since you opened a new account, how many recent requests for credit you have made, the length of time since credit report inquiries were made by lenders, and whether you have a good recent credit history following past payment problems.

Approximately 10% of your FICO® score is based on Types of Credit in Use. This category includes what kinds of credit accounts you have as well as the total number of accounts you have.

What is not in a FICO® score?

Your FICO® score does not consider your race, color, religion, national origin, sex and marital status; your age; your salary, occupation, title, employer, date employed, or employment history; where you live; any interest rate being charge on a particular credit card or other account; any items reported as child/family support obligations or rental agreements; requests for your credit report; information not found in your credit report; information that is not proven to be predictive of future credit performance; and whether or not you are participating in credit counseling of any kind.

About the Author

Melinda Dionne

My name is Melinda Dionne.  For over 35 years, I have been helping people find a way to deal with overwhelming debt.  I have never represented a deadbeat because the vast majority of people having financial problems are anything but deadbeats.

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