About Credit Scores

The Purpose of the Credit Score

The purpose of a credit score is to predict the likelihood that a person will get a 90 day late within the next 24 months. With the FICO model, scores will range from 300 to 850. The top 4 factors that affected the score will be listed under the score. The median credit score is 720. 15% of the population is above 790. 1% of the population is below 500.

  • What You Need To Get a Credit Score

    • One open trade line.
    • The tradeline must be 6 months old.
    • The tradeline must be updated by the creditor and sent to the a credit bureau within 6 months.
    • Your Social Security number cannot be associated with suspicious or fraudulent activity.

  • Calculation of Credit Score

    There are 10 different profiles that people are put into to score their credit. Eight of those profiles are for those with good credit. Two of those profiles are for those with bad credit (someone who has had a 90 day late). The worst of the 2 bad profiles is for those with public records.

  • Factors That Affect Scores

    Credit Pie
    • Payment History
      • Recency
        • 0 - 6 Months - Very Bad
        • 7 - 23 Months - Bad
        • 24 Months - This is when the score will start to improve
      • Frequency
      • Severity
    • Balances
      • Considers balances on revolving accounts not installment loans.
      • Revolving balances greater than 50% of the limit will affect the score adversely.
      • Revolving balances greater than 75% of the limit will severely affect the score adversely.
      • It is generally better to have some small balances than to have all zero balances.
      • American Express has no high balance limit. They report the higher of last month's balance or the current month's balance as the high credit limit.
    • Credit History
      • Length of time someone has had credit.
      • Age of oldest tradeline.
      • Number of new tradelines.
      • The ideal number of tradelines is 3-5 depending on the length of time someone has had credit. Opening new accounts affects the calculation for how long someone has had credit.
      • 1 card for 10 years = 10 year history
      • 1 card 9 years, 1 card 1 year = 5 year history?(Total of 10 years / Total of 2 cards)
    • Type of Credit

      Ideally, there should be a healthy mix of revolving and installment accounts. The credit score will reflect all accounts - open & closed. A home equity line will be treated as an installment account rather than a revolving account in some cases. The high credit limit is a factor. When a home equity line is treated as installment debt, the ratio of balance to limit will not have an adverse affect.

    • Inquiries

      5 - 7 inquiries per year is an acceptable amount. Each inquiry will reduce score between 5 and 15 points, depending on overall credit profile. Some inquiries (such as finance company installment accounts) can reduce score by as much as 20 to 30 points.Promotional inquiries do not hurt score.

  • Bankruptcies and Collections

    When there are public records, the score is determined mainly by the recency of the public record.The percentage of tradelines that are part of the bankruptcy affects the score. Scores can improve during bankruptcy if payments are made timely on the other tradelines that are not part of the bankruptcy.Credit scores can go down after a judgment is removed because it shows as recent activity for a public record item. Also, the other credit items could then be more heavily weighed. Suggestion: Pay collections or judgments at closing.To remove collection item from credit report: get a letter from the original creditor stating that the account should never have gone to collections.Even if a debt is assigned to one spouse in a divorce agreement, if the account was originally opened as a joint account it will reflect on the credit reports of each person. To mitigate potential tarnishment of credit, the spouse not responsible according to the divorce agreement should send a letter to the credit bureaus stating the arrangement supported by a copy of the divorce agreement.Bankruptcies will stay on the credit report for 10 years. State tax liens will stay on the credit report for 7 years after they are satisfied. Public records will stay on the credit report for 7 years.

  • Establishing Credit History

    A secured credit card is a way to get credit when there is a problem in the credit history. Because of the collateral that is pledged, there is usually not an inquiry to obtain the account.Becoming an authorized user on someone else's card will establish a history for the authorized user. Each party is then liable to have their score affected by the others use of the account.

  • Credit Report Companies

    • First American Credco 1-800-255-0792
    • Kroll Factual Data 1-800-929-3400
    • Credit Plus, Inc. 1-800-258-3488