What’s Your Credit Score?
There are hundreds of loan programs out there, each with different features and requirements. No two programs are exactly the same, but when it comes to determining your qualifications, they all have one thing in common: your credit score.
Credit scoring is a statistical means of assessing how likely a borrower is to pay back a loan. It is not a measure of the borrower’s income, assets or any other non-credit factor. The credit scores measure the risk a potential borrower represents to the lender. A credit score is given on a numerical basis with a range of 375 to 900 points.
The three national credit reporting agencies: Equifax, Trans Union and Experian all issue credit scores. The three agencies use complex mathematical statistics to determine and forecast a borrower’s credit pattern.
The credit score factors that determine the final number are payment history, outstanding debt, credit history, pursuit of new credit and types of credit that are in use.
Payment History – Severity, how recent and frequency of late payments, as well as collection accounts, judgments, bankruptcies and foreclosures play a very important role in a credit score.
Outstanding Debt – The number and averages of balances of all credit accounts. The relationship between total balances and total credit limits on revolving accounts.
Credit History – The age of the oldest credit account. The number of new credit accounts.
Pursuit of New Credit – The number of inquiries made on the borrower’s credit history. Also, the number of new accounts opened and the amount of time since the most recent inquiry into the borrower’s credit.
Types of Credit in Use – Number of accounts reported for each type: Bankcard, travel and entertainment, department store cards, installment loans, etc.
These are the main items, in order of severity, which will affect your credit score. A borrower should always be concerned about the amount of credit they have, as well as the number of companies checking into their credit.