Credit Scoring

written by: Isaac Baxter; article published: year 2010, month 05;

In: Root » Legal and finance » Debt and credit

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The primary method of determining an applicant's creditworthiness will be "credit scoring." A credit score is based on a statistical analysis of your credit history, and it is generally included as part of your credit report. It is called your FICO score, and the methodology for scoring was developed by the Fair Isaac Corporation. The Fair Isaac credit score ranges from 400 to 900. The higher your score, the better your credit rating. Borrowers with a credit score over 660 are very unlikely to default on a mortgage. Borrowers with a credit score of less

than 620 are far more likely to default on a morgage, and those with a low credit score will have to pay more for their mortgage, more discount points and higher rates.

The factors that go into determining your credit score are as follows:

  • Public records that pertain to your credit: bankruptcies, liens, lawsuits and judgments
  • The outstanding balances on your credit cards and other loans compared with the credit limits for those loans
  • Recent credit inquiries that have been made into your credit data that suggest you are seeking additional loans or credit cards
  • The age of your open credit card and charge accounts

There are three large national companies that keep credit history on everyone in the country: Equifax, Trans Union and Experian (formerly TRW). Equifax calls its score the Equifax BEACON. Trans Union calls its score the EMPERICA®. Experian calls its score the Experian/FICO.

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