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Credit
Rating FAQ
Credit
Reporting Agencies
What is a FICO score?
| Credit
Reporting Agencies |
Three
agencies accumulate data on which to base
your credit history. Their names, addresses
and phone numbers are shown below. It is normally
very difficult to speak to a live person at
these agencies; instead you are directed through
a voice-mail maze which will give you instructions
on how to get a copy of your report, what
it may cost, or how to deal with a problem
you may have. In any case, it is better to
communicate in writing. Use certified mail
so you will get a receipt showing that the
agency received your letter and when they
received it.
EQUIFAX
P.O. Box 105873
Atlanta GA 30348
(800) 685 1111
EXPERIAN
(formerly TRW)
P.O. Box 8030
Layton UT 84041-8030
(800) 520 1221
(800) 682 7654
TRANS-UNION
P.O. Box 390
Springfield PA 19064
(800) 961 8800
(800) 851 2674
A
FICO score is a generic term for a credit
bureau score and specifically refers to the
score derived from the FICO statistical model.
A credit bureau score measures the relative
degree of risk a potential borrower represents
to the lender or investor. Each of the three
credit bureaus have their own method, or statistical
model, for calculating scores. The bureaus
rely exclusively on their own data for calculating
scores. The credit bureaus and their respective
models are:
- Equifax
(formally CBI) / Beacon model
- Trans
Union / Emperica model
- Experian
(formally TRW) / FICO model
Fair, Isaac
& Co. (FICO) began its pioneering work
with credit scoring in the late 1950s. Since
then, scoring has become widely accepted
by lenders as a reliable means of credit
evaluation. A credit score attempts to condense
a borrowers credit history into a single
number. Fair, Isaac & Co. and the credit
bureaus do not reveal how these scores are
computed. The Federal Trade Commission has
ruled this to be acceptable.
FICO scores
vary from approximately 375 to 900 points.
Higher scores are better.To get the best
interest rates, you will generally need
to score 680 or higher. If your score is at
least 680, you are considered to have
'A' credit. If your score is below 620,
you will generally pay a higher rate on
your mortgage, and your credit is considered
"sub prime." Depending on your score and
credit, you may be considered to be a 'B',
'C', or 'D' credit borrower. If your score
is between 620 and 680, based upon factors
such as income, assets, employment, etc.,
the lender may decide into which credit
category you fall. Presented below is a
general guide which can give you an idea
of your credit ranking (A+ through E) based
upon your credit score:
| |
Credit
Score |
Debt
Ratio |
Max
LTV |
Mortgage |
Revolve |
Install |
| 30 |
60 |
90 |
30 |
60 |
90 |
30 |
60 |
90 |
| A+ |
680 |
36 |
95 |
0 |
0 |
0 |
2 |
0 |
0 |
1 |
0 |
0 |
| A- |
660 |
45 |
95 |
1 |
0 |
0 |
3 |
1 |
0 |
2 |
0 |
0 |
| B |
620 |
50 |
85 |
2 |
1 |
0 |
4 |
2 |
1 |
3 |
1 |
0 |
| C |
580 |
55 |
75 |
4 |
2 |
1 |
6 |
5 |
2 |
5 |
4 |
1 |
| D |
550 |
60 |
70 |
5 |
3 |
2 |
8 |
8 |
4 |
7 |
6 |
2 |
| E |
520 |
65 |
60 |
6 |
4 |
3 |
10 |
10 |
6 |
10 |
8 |
3 |
FICO scores
are calculated by using scoring models and
mathematical tables that assign points for
different pieces of information which best
predict future credit performance. Developing
these models involves studying how millions
of people have used credit. Some of the predictive
factors used in the models are found in the
reason codes.
Reason codes
are included in credit reports and help
explain why a credit report scored as it
did, the weight given to factors making
up the score, and where a consumer should
direct their efforts toward increasing their
score. The reason codes and their
respective weights are:
- Late Payments,
Collections, Bankruptcies--35%
- Outstanding
Debt--30%
- Length
of Credit History--15%
- Types
of Credit--10%
- Inquiries
(Applications for New Credit)--10%
How can
I increase my score? While it is difficult
to increase your score over the short run,
here are some tips to increase your score
over of time.
- Pay your
bills on time. Late payments and collections
can have a serious impact on your score.
Note that late payments, collections and
bankruptcies are the most heavily weighted
of the reason codes.
- Reduce
your credit-card balances. If you consistently
have high balances on your credit cards,
your credit score will be negatively affected.
Note that this applies to the second most
heavily weighted reason code.
- If you
have limited credit, obtain additional
credit. Not having sufficient credit can
negatively affect your score.
- Do not
apply for credit frequently. Having a
large number of inquiries on your credit
report can worsen your score.
If several
companies check my credit, will that hurt
my score? That depends. The scoring
system has changed to be more lenient in
this regard. A few inquiries over a short
period of time won't hurt your score. Mortgage
lenders realize that when a borrower is
shopping for a rate, their credit may be
investigated by more than one lender.
What if
there is an error on my credit report?
If you see an error on your report, report
it to the credit bureau. The three major
bureaus in the U.S., Equifax (1-800-685-1111),
Trans Union (1-800-916-8800) and Experian
(1-888-397-3742). All have procedures for
promptly correcting errors. Your mortgage
company may also be able to help you correct
credit report errors.
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