Credit Scoring Basics

What is Credit Score?

A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. The most common of the credit score standards is the FICO score by Fair Issac. The FICO score ranges from 350-850 and is intended as a predictor of whether or not you will be 90 days late on a loan obligation. Fair Issac uses thousands of credit reports to calibrate the FICO scoring model and is very secretive of the exact formula. Here is a percentage breakdown of a FICO score:

Most people are aware of the three credit reporting agencies: TransUnion, Equifax and Experian. The average difference in score between the highest and lowest of your three FICO scores is 60 points. This is a result of each of the credit bureau having different items on their report, some correct, some incorrect and some that are not being reported in full compliance with credit law.

How can I find out my credit score?

Visit www.myfico.com and order the same credit score a mortgage company uses for approvals. A request for your FICO score at www.myfico.com is not considered a personal inquiry and will not hurt your credit score.

How can I get a free copy of my credit report?

By law, all consumers are entitled to a free copy of their credit report from each of the three credit bureaus once a year. Visit www.annualcreditreport.com to get yours for FREE. This is the credit report only and does not include the credit score.

How long will the items get reported on my file?

Delinquencies (anywhere from 30-180 days): Can remain seven years from the date of the initial missed payment.

Collection Accounts: 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 "paid collection” on the credit report.

Charged-Off Accounts: Remain seven years from the date of the initial missed payment that led to the charge-off.

Closed Accounts: Accounts that are no longer available for further use. They may or may not have a zero balance. Closed accounts with delinquencies remain seven years from the date they are reported closed, whether closed by the creditor or the consumer, but the delinquency notation will be removed seven years after the delinquency occurred when pertaining to late payments. Positive closed accounts remain ten years from the closing date.

Lost Credit Card: If there are no delinquencies, credit cards that are reported lost will continue to be listed two years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.

Bankruptcy: Chapters 7, 11, and 12 remain for ten years from the filing date. Chapter 13 remains seven years from the filing date. Accounts included in bankruptcy will remain seven years from the date they were reported as included in the bankruptcy.

Judgments: Remain seven years from the date the judgment is filed.

City, County, State and Federal Tax Liens: Unpaid tax liens remain fifteen years from the filing date. Paid tax liens remain seven years from the paid date of the lien.

Inquiries: Most inquires listed on your 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 inquires, such as employment or pre-approved offers of credit, will show only on a personal credit report pulled by you.

Is there anything that cannot be in my credit report? Certain information cannot be in a credit report, including:

How To Be A Smart Consumer

Do not depend or trust any of the three credit bureaus to maintain accuracy of your credit file. It is your responsibility to annually review and monitor the accuracy of your credit report(s). Keep in mind, you must review all three! Your credit score affects the interest rate you receive for your auto, home and business property. Your credit score also affects how much you pay for Life, Homeowner and Auto Insurance or determines if an apartment complex will accept you as a tenant… and more! If you have inaccuracies with one or all three bureaus you need to contact each bureau individually describing the inaccuracy, the name of the credit supplier, your account number with written proof of timely payment or your social security number to verify whether or not you are on the account.

Contact the bureaus: Equifax, Experian and Trans Union. You should also send all correspondence to the bureaus by certified mail with a return receipt. A copy of your inquiry should also be sent to the Federal Trade Commission (FTC). The FTC governs the credit bureaus and will follow up with you and the bureau(s) regarding your request(s). An accurate credit file is your responsibility to maintain.


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