| Your credit score can have a profound effect on your | | | | serving the states of Florida, Georgia, Massachusetts |
| financial life. It is essential to understand how credit | | | | and Virginia and a national credit repair company I |
| scores work and how you can make them work for | | | | spend a lot of time analyzing credit reports. Everyone |
| you. Here are the important facts that can make all of | | | | wants to know what they should do to improve their |
| the difference. | | | | credit scores. The exact method for calculating your |
| Who are the credit bureaus? | | | | credit score is a secret. But Fair Isaac offers a fair |
| I have managed a mortgage company since 1989. I | | | | amount of information about the essentials. There is a |
| also manage a national credit repair business. We | | | | lot of information on your report. And not all categories |
| speak to people about their credit all day long. There is | | | | of information carry the same weight in the score |
| a common misconception that the credit bureaus are | | | | calculation. |
| in some way connected to the government. It’s | | | | Your payment history is the big ingredient. This |
| not true — they are nothing but big business. | | | | category includes the obvious installment and revolving |
| There is no government charter or anything of the | | | | debt payments. It also includes public records and |
| sort. And yet there may be nothing that has such a | | | | collections. The age of any derogatory item in this |
| profound influence on your financial life. | | | | category diminishes its impact on your score. Fair Isaac |
| There are three credit bureaus that matter. They are | | | | indicates that his category makes up 35% of your |
| Experian, Equifax, and TransUnion. Their business is to | | | | score. |
| gather credit data about you and sell it to potential | | | | The balances you owe make up the next category. |
| creditors to determine your credit worthiness. | | | | Different weights are given to revolving versus |
| There is a fourth bureau called Innovis that you may | | | | installment balances. The relationship between the |
| hear of occasionally. Innovis is a major compiler of | | | | balance and the credit limit on your revolving accounts |
| credit data which is used for pre-screening those | | | | is a big factor. And the relationship between the |
| unsolicited credit card offers we all get in the mail. | | | | current balance and the original balance on installment |
| Mortgage giants Fannie Mae and Freddie Mac | | | | loans is taken into consideration as well. Fair Isaac |
| contributed to the rise of Innovis in 2001 by demanding | | | | indicates that this category makes up 30% of your |
| that all of their mortgage servicers report | | | | score. |
| borrowers’ pay histories to Innovis. I suspect | | | | The length of your credit history is a factor as well. |
| that we will all hear more about Innovis in the future, | | | | New credit will have a negative impact on your score, |
| but for the moment it has no direct impact on your life. | | | | and those accounts that you have kept alive and |
| What is a credit score? | | | | healthy for years have a good impact. This category |
| At the moment all three bureaus use a single scoring | | | | makes up 15% of your score. |
| model called the FICO score. FICO is an acronym for | | | | Your new credit and your recent credit inquiries are a |
| the developer of the score, Fair Isaac and Co. The | | | | factor. If you have new credit or have had your credit |
| three bureaus have branded the FICO model for their | | | | run recently you have increased your debt load, or you |
| own marketing so you may hear it called different | | | | are about to. Either way you will lose a few points on |
| names. Equifax calls it a BEACON score, TransUnion | | | | this one. Fair Isaac weighs this at 10% of your score. |
| calls it an EMPIRICA score, and Experian (who seems | | | | The type of your credit is the last ingredient and the |
| to lack imagination) calls it the EXPERIAN/Fair Isaac | | | | final 10% of the calculation. This is a bit more |
| Risk Model. | | | | mysterious. There is some ideal mix of mortgage, |
| Why are your three scores different? | | | | installment, retail store cards, revolving accounts, and |
| Your scores with each bureau are different because | | | | consumer debt that Fair Isaac will reward. Fair Isaac |
| each bureau gathers information from a slightly | | | | won’t say exactly what the perfect mix is, but |
| different mix of creditors. If you were to look carefully | | | | in our experience the key is to build and maintain a well |
| at your three reports you will notice that some | | | | managed balance of accounts, make your payments |
| accounts are missing on each bureau. Timing also | | | | on time, and try to keep those revolving balances |
| plays a roll. A recent change in your credit may be | | | | down. |
| picked up sooner at one bureau than another. | | | | Copyright © 2007 James W. Kemish. All Content. All |
| What’s included in your score? | | | | Rights Reserved. |
| As the manager of a Florida mortgage company | | | | |