What is a Credit Score – And Why is it Important?
A credit score is a number – usually between 300-850, that is supposed to be an indicator of how likely it is you will repay the money that a lender lends to you. Your credit score is a major factor in a lender determining
- – what interest rate you will be charged on a loan
- – how much you have to put down
- – If you have to put down a deposit (such as for utilities)
- – whether you will be approved for the loan at all.
The higher the number the better it is for you.
While “brackets” on credit scores vary a little bit, here is a general picture of credit score ranges:
How Credit Scores are Calculated
Two major companies – FICO (Fair Isaac Corporation) and Vantage (Jointly owned by the three major credit reporting agencies) provide the vast majority of the scoring methods, or models. There are many different models that include or weigh things differently, which means you literally could have hundreds of different credit scores, depending on which model the lender chooses to buy and use. That is why you can go to different sources and have different scores (in some cases major differences) even though the information they have may be exactly the same. In addition, some creditors do not report the information they have to all three credit reporting agencies, which is another reason your score from one credit reporting agency can be very different from another credit reporting agencies.
exactly the same. In addition, some creditors do not report the information they have to all three credit reporting agencies, which is another reason your score from one credit reporting agency can be very different from another credit reporting agencies.
What Determines Your Credit Score
The following charts show what all makes up your scores and the weight of each component. Shown are the charts for the two main providers of credit scoring methods, or models
As you can see, there are slight differences between the top most used scoring models, FICO and Vantage, but for the most part the weighting of the components are similar.
We will help you to dispute negative items in your payment history follows above (ask if confused)
We will help you to dispute negative items in your payment history.
- We will show you how to maximize your debt ratio score, even if paying off credit cards is not an option.
- We can also help you to removing credit inquiries from your credit report. Most people are aware of the three credit reporting bureaus, Equifax, Experian and TransUnion. The average difference in scores between the highest and lowest of your credit scores, from the three bureaus, is 60 points. This is the result of the credit bureaus having different items on their report, which may be correct, incorrect or are not reported in full compliance with credit law. According to a recent study, nearly 80% of all credit reports have serious errors on them and this does not even include the even smaller errors for which we look.
In addition to starting the credit dispute process with you, what can I do to help raise my credit score?
- Pay all of your bills on time, every time. This includes your utility bills, mortgage and auto payments, and all of your revolving lines of credit like credit cards. Check your credit report at least once a year. You can find out how to challenge bad information on your credit report here.
- Never charge more than 30% of the available balance on any of your credit cards. Banks like to see a nice record of on-time payments, and several credit cards that are not maxed-out. If you are carrying high balances on your credit cards, then make paying them down below 30% a priority. Do use your credit cards – Many people who make mistakes with their credit believe that the best way to fix things is to never use credit again. If you are afraid that you cannot handle your credit cards correctly then the best policy is probably this one: Run only your utility bills on your credit cards each month, and then pay the balance in full by the due date. This ensures that your utility bills get paid on time automatically, and as long as you keep the habit of paying off your credit card balance each month your score will continue to go up. Leave the credit cards locked in a safe or drawer at home.
- Keep your accounts open as long as possible – Even if you are no longer charging on the card. The best policy is to keep those unused accounts open, blow the dust off your card every few months to make a small purchase, then pay it off. How long each of your accounts have been active is a major factor in your credit score.
- Remember that this all takes time – Following the above steps consistently over a long period of time will increase your credit score and allow you to qualify for better loans and lower interest rates. Repairing your credit score does not happen overnight, so if you do these things for a few months and do not see a large increase in your score, do not give up. They are all habits that you will want to maintain throughout your life, as they will help you to keep your finances and lines of credit under control.
How long will certain items remain on my credit file?
- Delinquencies (30- 180 days): A delinquency may remain on file for seven years; from the date of the initial missed payment.
- Collection Accounts: May remain seven years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked as a “paid collection” on the credit report.
- Charge-off Accounts: When a delinquent account is sent to a collections company. This will remain for seven years from the date of the initial missed payment that led to the charge-off (the original delinquency date), even if payments are later made on the charge-off account.
- Closed Accounts: Closed accounts are no longer available for further use and may or may not have a zero balance. Closed accounts with delinquencies remain for seven years from the date they are reported closed, whether closed by the creditor or by the consumer. However, the delinquency notation will be removed seven years after the delinquency occurred when pertaining to late payments. Positive closed accounts continue to be reported for ten years from the closing date.
- Lost Credit Card: If there are no delinquencies, credit cards reported as lost will continue to be listed for two years from the date the creditor is contacted. Delinquent payments that occurred before the card was lost are reported for seven years.
- Bankruptcy: Chapters 7, 11, and 12 will remain on one’s credit report for ten years from the filing date. A Chapter 13 bankruptcy is reported for seven years from the filing date. Accounts included in a bankruptcy will remain for seven years from the date reported as included in the bankruptcy
- Judgments: Remain seven years from the date filed.
- City, County, State, and Federal Tax Liens: Unpaid tax liens remain for fifteen years from the filing date. A paid tax lien will remain on one’s score for 10 years from the date of payment.
- Inquiries: Most inquiries listed on one’s credit report will remain for two years. All inquiries must remain for a minimum of one year from the date the inquiry was made. Some inquiries, such as employment or pre-approved offers of credit, will show only on a personal credit report pulled by you.
Information that cannot be in a credit report:
- Medical information (unless you provide consent)
- Notice of bankruptcy (Chapter 11) more than ten years old
- Debts (including delinquent child support payments) more than seven years old
- Age, marital status, or race (if requested from a current or prospective employer)