Credit Scoring Measures Borrower’s Trustworthiness

credit scoring

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What is Credit Scoring?

Everyone knows there is such a thing as credit scoring.  What is credit scoring?  Who decides what it is?  How is credit scoring Measured?  How often does credit scoring change?  What information is in it?  What information is not in it?  Can I manipulate it?  Why is credit scoring important?

Let’s call this lesson Credit Scoring 101.  I hope to take the mystery out of the whole business of credit scoring.  Knowledge of what a credit score is gives you, the consumer, the power to control your credit score instead of having your credit score control you.  Determine for yourself what you can and cannot borrow.  You will learn how to delete 100% of the inaccurate information on your credit scoring report.  You will learn how to successfully challenge questionable entries and inflated balances.  You will clean up conflicting personal information.  In a short period of time you will see a dramatic permanent increase in your credit score.  You will learn how to keep it at the high level necessary to qualify for the best loan rates, insurance rates, responsible jobs and get what you need to improve your life.  Just a few cautions before we start:

  • Do not close open accounts unless the annual fee is too high to justify the available credit it gives you
  • Do not pay off any collections that show on your credit reports until you read further
  • Do not open any new accounts
  • Do make at least the minimum payment on time on the accounts you have plus a few dollars if you can.  This shows the creditor’s computer you are making more than the minimum payment

Now you are ready to start the most useful and comprehensive credit repair and improvement course ever made.

What is Credit and why is it important?  Credit is a determination of how much trust a lender is willing to place in your ability and willingness to repay a loan.

What is a FICO credit score?  A Vantage credit score?  Why are they different?  Which Is more important?  FICO scoring model is used by more than 90% of lenders.

  • FICO:  There are 49 versions.  The basic version ranges from 300-850
  • Vantage Credit Score (Versions 1.0 and 2.0 range from 501-990
  • Vantage 3.0 version range is 300-850
  • Experian National Equivalency Score range 360-840
  • PLUS Score range 330-830

How is your FICO score determined?  It has 5 component parts.  These parts are analyzed by computers according to their relative weight.  This measures how likely you are to honor the terms of your loan.

What does your credit score mean?  In theory credit scoring predicts your likelihood to honor the commitment to repay the money you seek.

How you can boost your credit score.  Consistent timely payments and lack of negative entries are critical.  You will learn much more if you pay attention and want to join our learning community to better your financial future.

Your rights when the credit scoring report is wrong.  All negative entries must be verifiable.

Where to get more information?  Participate in our credit repair community.  Read our essays, watch our videos and comment and question freely.

Anatomy of a Credit Scoring Report:

  • Personal Information
  • Negative and Positive Accounts
  • Public Records
  • Inquiries
  • Consumer statement if any
  • Creditor contact information

Negative Credit Scoring Report Entries

Late Payment:  30 day, 60 day, 90 day, 120 day.  The more of these late payments and the more recent they are the worse will be the damage to your credit score.  Several 30 day late entries can be as bad as a 90 day late payment.  Recency and severity are the key to how much damage is caused.

Charge Offs:  Creditor no longer believes that debt is collectible.  Creditor gets to claim it as a loss for tax purposes and the IRS could consider it income to you.  These are very bad for credit scores.  Many lenders won’t deal with you at all when you have a charge off on your history.  Typically after 180 days late.

Repossessions:  Auto repossessions are particularly bad if you want to buy another car.  Your separate credit score for auto buying gives repossession additional negative weight.

Bankruptcy:  Only time can cure the negative impact a bankruptcy has on your credit score. Get a secured credit card as soon as you can after bankruptcy to begin the process of establishing a new positive history.  Take any offer you may receive for a low limit credit card to use it to reestablish a new good payment history.  Becoming an authorized user on another borrower with a positive credit card history can help enormously.  This is legal despite what you may have heard.

Judgments and liens:  Appear less often with new rules because they are difficult to verify accurately.  Stay on your credit report’s public records section for 7 years from date of entry.

Foreclosure:   Stays on for 7 years

New Credit  :   Each hard inquiry costs about 5 points at the credit reporting agency where it’s made for one year.  If your request for new credit is granted the new credit lowers the average age of your accounts which is not good.

 Positive Credit Report Entries

Consistent on Time payment as agreed is the first essential rule of developing a great credit score.

Low balances relative to credit limits, especially with credit cards, is the next most important critical element of your credit score.

Mix of Different Kinds of Credit such as installment loans to go with your revolving credit accounts is essential.

Don’t open unnecessary new accounts.  They require a hard inquiry and lower the average age of your accounts.

Calculating Credit Scoring

Credit scores constantly change as new information comes in and older obsolete information is deleted. Your credit file does not sit in a folder somewhere.  New information can change it drastically for better or worse at any time.

 Credit Reporting Time Clock

Most items are removed 7 years after the date of First delinquency.  Bankruptcies stay for 10 years.  Unpaid tax liens stay indefinitely or at least until 10 years after the 10 year statute of limitations expires.  The IRS will delete the record of the lien upon payment or entry into a regulated payment plan.  State tax liens can be more difficult.

Inquiries Effect on Credit Scoring

What is a hard inquiry?  A hard inquiry is made by the lender when you apply for a loan.  Hard inquiries cost about a negative 5 points for a year with the credit reporting agency to which they are made.  Soft inquiries are inquiries such as those you make yourself, landlords, employment or by lenders looking to make you an offer without you asking.  They do not affect your score.










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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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