For all intents and purposes, there is only one credit score. There is only one score that you should be worried about maintaining if you want to borrow money, your FICO credit score. All three of the credit bureaus have their own version of a credit score, but 90% of all lenders use the FICO score. The FICO credit score was developed by the Fair Isaac Corporation, which has been in the business of credit scoring since 1958, and the FICO credit score has become the standard benchmark that lenders use to separate risky borrowers from primer ones. If you currently have a score that has seen better days, then you need not despair. Your credit score can improve if you learn to handle your credit more wisely. Time heals all wounds. Any negative marks can start to disappear with the passing of time. Even a bankruptcy will be expunged from your credit after seven years. Make timely payments and pay down your debt and you will see your score gradually improve. A poor score doesn’t necessarily have to follow you around forever.
Items That Don’t Factor In Your FICO Score
Certain items are not considered when calculating a score. These include:
• Your age
• Your occupation
• Where you reside
• Specific interest rates being charged on certain credit cards
• Child support or alimony payments
• Whether or not you are attending credit counseling
What Is Included…
Your FICO credit score factors in a host of data from your life in an attempt to accurately place a score on your likelihood to repay debt. It is dependent on such things as your payment history, delinquent account information, how much you currently owe and what you currently owe. The score also factors in things like the length of time credit has been extended to you and the number of inquires into your credit report and history. Judgments, liens and bankruptcies are considered as well. The Fair Isaac Corporation uses five main categories in their proprietary formula: payment history, amount currently owed to lenders, length of history, types of credit extended to you, and if there is any new credit. Each one of these categories is even further broken down into criteria the company looks for in a good borrower. For example, when the company looks at your past payment history on loans you have had, they look for presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items), severity of delinquency, amount past due on delinquent accounts or collection items, time since past due items, adverse public records, or if there are any collection items filed, number of past due items on file, and number of accounts paid as agreed. As you can see, there is a lot of information that comprise your credit score.
Inquiries – How they Affect Your Credit Score
While it’s true that applying for credit can reduce your score somewhat (you are seen as more of a risk by creditors), you don’t have to worry too much if you’re applying, say, for funding for a car or a mortgage. There are two different types of inquiries that are made against your credit score: a soft pull and hard pull. A soft credit check is when you send a request to a credit bureau to look at your score or credit report. A soft credit pull does not affect your credit score. There are many times when you may not even be aware that one occurred such as when a credit card company does an initial check when researching you for a “pre-approved” credit card offer. A hard pull is one that does affect your credit score slightly because those occur when you are actively seeking new credit such as when you are shopping for a mortgage or a car loan. When you shop around for a mortgage, for instance, several credit score inquires made in a short time span are recognized as one inquiry.
Scoring is designed to gauge how well a person can pay back his or her debt. Your score is your grade, like an SAT or ACT score to get into college, on your ability to handle debt. It is a general numerical summation of all the details found in your credit report. If you must borrow money, then you need to know and understand how your FICO credit score is calculated and what factors of your financial life go into it.
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