Credit Scoring

We have done extensive research on the scoring model and have learned the FICO* Score is developed by taking millions of people, their payment histories, balances, credit limits, number of open accounts, and the percentage that doesn't pay, and then coming up with several different averages to justify credit worthiness. Unfortunately, your score really isn't your score. It's a score based on the performance of millions of people. The score consists of up to 300 different characteristics which are then boiled down to 10 different score cards. Each score card is a determining factor in being approved for credit; we understand the 10-card scoring system as well as the 300 encoded characteristics that are used to develop the concluding model. Here is a percentage breakdown of some factors the formula takes into consideration:

*The term FICO stands for Fair Isaac Company. How the FICO Credit Score Works

Credit scores are designed to measure the risk of default by taking into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:

Payment history (35%).

The largest factor determined on your FICO score is your basic payment history. This includes the number of unpaid bills you have, any bills sent to collection, bankruptcies, etc.... The more recent the problem, the lower your score will be. In fact, even something as seemingly insignificant as a 30 day late payment can have a tremendous negative impact on your score if it occurred within the last few months.

Outstanding Debt (30%)

Are your cards maxed out? High balances or more precisely, balances that are close to your credit limit, can negatively effect your score. It's best to keep your balances below 50% of your limit or to pay the cards off all together (if possible). If you had to choose between paying $1000 on three cards or paying off one card with a $3000 balance, it's better to pay off the one card.

Length of your credit history (15%).

How long have your accounts been open? The longer they have been open, the better.

Recent inquiries (10%).

Every time you apply for credit of any kind, you create an inquiry on your credit report. Lots of inquiries negatively affect your score. Inquiries within the last six months are especially damaging.

Types of credit in use (10%).

How many types of credit are in use, and how much? Having loans from finance companies (Beneficial Finance, American General, etc.) can detract from your score.

As you can see, raising your credit score can be more complex than disputing the accuracy, validity, and timeliness of a negative item on your credit report. Removing inaccurate and unverifiable information from your report will increase your scores. But in order for you to benefit the most from your score, you must take a look at your credit situation as a whole.

There are other special factors which can weigh on the FICO score.
  • Any money owed because of a court judgment, tax lien, etc. carry an additional negative penalty, especially when recent.
  • Having one or more newly opened consumer finance credit accounts may also be a negative.

FICO Score Numbers A FICO score is between 300 and 850, with 60% of scores near the right between 650 and 799. According to FICO the median score is 723.
Each individual actually has three credit scores for the FICO scoring model because the three national credit bureaus, Experian, Equifax and TransUnion, each has its own database. Data about an individual consumer can vary from bureau to bureau.
The NextGen Score is a scoring model designed by the FICO company for assessing consumer credit risk. In 2004, at the time of launch, FICO research showed an 4.4% increase in the number of accounts above cutoff while simultaneously showing a decrease in the number of bad, charge-off and Bankrupt accounts when compared to FICO traditional[13].

Prior to the introduction of NextGen, their FICO-based scores were also marketed under different names:
  • Experian: FICO or FICO II
  • Equifax: BEACON
  • TransUnion: EMPIRICA

Your Credit Score is a number that controls many facets of your life, including interest rates, insurance rates, and even your current and future job: It's Serious, and So Are We!