Credit Score Info
This section contains comprehensive information on credit scores and
how they work. Advantage Credit encourages you to read all the information
contained in this section for a thorough understanding of credit scoring.
- About credit scores
- How credit scoring works
- What a credit score uses
- What a credit score ignores
- Things to remember when examining credit scores
- Payment history
- Amounts owed
- Length of credit history
- New inquiries
- Types of credit used
- Interpreting the credit score
- Common score reasons
- How CreditXpert® can help you improve
your credit score
- Correcting errors in credit files
- The Accurate Credit™ service—expediting
- How the repositories search credit
- What brokers should do before accessing your
file to insure a correct search
- Credit bureau contact information
Credit bureau scores are often called "FICO
scores" because most credit bureau scores used in the United States are
produced from software developed by Fair, Isaac and Company (FICO). FICO
scores are provided to lenders by the three major credit bureaus: Equifax,
Experian and TransUnion. Credit scores give prospective credit grantors
the best guide regarding the risk of poor payment performance or non-payment
based solely on credit report data. The higher the score, the lower the
indicated risk. But no score says whether a specific individual will be
a "good" or "bad" customer.
While many lenders use credit scores to help them
make lending decisions, each lender has its own strategy, including the
level of risk it finds acceptable for a given credit product. No single
"cutoff score" determines a borrower's ability to secure credit, and there
are additional factors that lenders use to determine your actual interest
rates. Lenders can charge higher interest rates for lower credit score
candidates, for example, to cover their costs of default from that category
Credit scores are determined by a mathematical model that evaluates many
types of information in a consumer's credit file. By comparing this information
to the patterns in hundreds of thousands of past credit reports, the score
identifies the lender's level of future credit risk. In order for a credit
score to be calculated on a consumer's credit file, the file must contain
at least one account, which has been open for six months or longer. In
addition, the file must contain at least one account that has been updated
in the past six months. This ensures that there is enough information
-- and enough recent information -- in the credit file on which to base
The following are the five main categories which credit scores evaluate
and the weight attached to each:
- Payment history: 35% of the score's weight
- Amounts owed on accounts: 30% of the score's weight
- Length of credit history: 15% of the score's weight
- New credit inquiries: 10% of the score's weight
- Types of credit used:10% of the score's weight
More about each of these categories and the measurements that they include
are contained further in this section.
Credit scores consider a wide range of information
on the consumer's credit report. However, they do not consider:
- A consumer's race, color, religion, national origin, sex and marital
status. US law prohibits credit scoring from considering these facts,
as well as any receipt of public assistance, or the exercise of any
consumer right under the Consumer Credit Protection Act.
- A consumer's age. Other types of scores may consider age, but FICO
- A consumer's salary, occupation, title, employer, date employed or
employment history. Lenders may consider this information, however,
as may other types of scores.
- Where a consumer lives.
- Any interest rate being charged on a particular credit card or other
- Any items reported as child/family support obligations or rental agreements.
- Certain types of inquiries* (requests for a consumer's credit report).
- Any information not found in the consumer's credit report.
- Any information that is not proven to be predictive of future credit
*The score does not count "consumer-initiated"
inquiries—requests the consumer has made for his/her credit report.
It also does not count "promotional inquiries"—requests made by
lenders in order to make a consumer a "pre-approved" credit offer (for
example, credit card offers by mail), or "administrative inquiries"—requests
made by lenders to review a consumer's account with them. Requests that
are marked as coming from employers are not counted either.
- A score uses all five categories of information, not just one or two.
- No one piece of information or factor alone will determine the score.
- The relative weight of any factor in a scoring category depends on
the overall information in the credit report.
- A consumer's credit score only looks at information in his/her credit
- The consumer's score considers both positive and negative information
in his/her credit report. Late payments will lower the score, but establishing
or re-establishing a good track record of making payments on time will
raise the score.
For some people, a given factor
may be more important than for someone else with a different credit history.
For example, late payments by a consumer with a bankruptcy in their recent
credit history may lower a score more points than for a consumer with
an otherwise positive repayment history. In addition, as the information
in the credit report changes, so does the importance of any factor in
determining the score. Thus, it's impossible to say exactly how important
any single factor is in determining the score; even the levels of importance
shown here are for the general population, and will be different for different
credit profiles. What's important is the mix of information, which varies
from person to person, and for any one person over time.
Note that lenders also look at many things when
making a credit decision: the consumer's income, how long he/she has worked
at his/her present job, and the kind of credit the consumer is requesting.
Payment history accounts for approximately 35%
of the weight of the score.
This is one of the most important
factors in a credit score. However, late payments are not an automatic
"score-killer." An overall good credit picture can outweigh one or two
instances of late credit card payments, for example. By the same token,
having no late payments in the credit report doesn't mean the consumer
will get a "perfect score." Some 60%-65% of credit reports show no late
payments at all. The payment history is just one piece of information
used in calculating the score.
This category takes into account:
- Payment information on many types of accounts.
These will include credit cards (such as Visa, MasterCard, American
Express and Discover), retail accounts (credit from stores where the
consumer does business, such as department store credit cards), installment
loans (loans where the consumer makes regular payments, such as car
loans, recreational vehicles, and signature loans), finance company
accounts and mortgage loans.
- Public record and collection items: bankruptcy, foreclosures, suits,
wage attachments, liens and judgments.
These are considered quite serious, although older items and items with
small amounts will count less than more recent items or those with larger
amounts. It is also important to note that even though a collection,
judgment or tax lien is reported as paid that the account is still considered
seriously delinquent because of the fact that it went to a collection
status. Never pay off an old collection, judgment, tax lien, etc. until
the close of escrow, as doing so turns the delinquency into a current
event (according to the "date of last activity")
and the consumer's score will go down.
- Details on late or missed payments ("delinquencies"), public record
and collection items.
Specifically, how late they were, how much was owed, how recently they
occurred and how many there are. A 60-day late payment is not as risky
as a 90-day late payment, in and of itself. But recency and frequency
count too. A 60-day late payment made just a month ago will count more
than a 90-day late payment from five years ago. Note that closing an
account on which the consumer had previously missed a payment or satisfying
a judgment or collection item does not make the late payment or item
disappear from the credit report. An important qualification considering
late payments is that a 30-day late payment is not considered a serious
delinquency. 60-day or more late payments are considered serious delinquencies.
A 30-day late payment will effect the credit score but not nearly as
much as a 60-day or greater late payment.
- How many accounts show no late payments?
A good track record on most of the consumer's credit accounts will increase
the credit score.
The best advice is to manage credit responsibly
- Pay bills on time.
Delinquent payments and collections can have a major negative impact
on the score. Late payments reported recently are more detrimental to
the score than are late payments that were reported in the past.
- If the consumer has missed payments, he/she must get current and
The longer the consumer pays his/her bills on time, the better their
- Be aware that paying off a collection account will not remove it
from the credit report.
It will stay on the report for seven years.
- If a consumer is having trouble making ends meet, he/she should
contact creditors or see a legitimate credit counselor.
This won't improve the score immediately, but if he/she can begin to
manage their credit and pay on time, their score will get better over
time. A recent change at Fair Isaac no longer penalizes a score for
the consumer entering Consumer Credit Counseling.
- Check your credit report regularly for errors. At least
annually is recommended.
Check for erroneous late payments and have them corrected with the reporting
bureau. Check for old, especially derogatory, information that is old
enough to be purged from the report. Ensure that accounts, again especially
derogatory accounts, are reported with the actual true date of last
activity. This would include accounts that were discharged through a
bankruptcy. The date of last activity of bankruptcy accounts should
match the date that the bankruptcy was discharged.
Here is a list of all past payment
- Account payment information on specific types of accounts (credit
cards, retail accounts, installment loans, finance company accounts,
- Presence of adverse public records (bankruptcy, judgments, suits,
liens, wage attachments, etc.), collection items, and/or delinquency
(past due items)
- Severity of delinquency (how long past due)
- Amount past due on delinquent accounts or collection items
- Time since (recency of) past due items (delinquency), adverse public
records (if any), or collection items (if any)
- Number of past due items on file
- Number of accounts paid as agreed
The amount owed on accounts makes up approximately
30% of the weight of the score.
Having credit accounts and owing money on them
does not mean the consumer is a high-risk borrower and gets a low score.
However, owing a great deal of money on many accounts can indicate that
a person is overextended, and is more likely to make some payments late
or not at all. Part of the science of scoring is determining how much
is too much for a given credit profile.
- The amount owed on all accounts.
Even if the consumer pays off his/her credit cards in full every month,
their credit report may show a balance on those cards. That's because
creditors report a month in arrears.
- The amount owed on different types of accounts.
In addition to the overall amount the consumer owes, the score considers
the amount he/she may owe on specific types of accounts, such as credit
cards and installment loans.
- Whether the consumer is showing a balance on certain types of accounts.
In some cases, having a very small balance without missing a payment
shows that the consumer has managed credit responsibly, and may be slightly
better than no balance at all. On the other hand, closing unused credit
accounts that show zero balances and that are in good standing will
not generally raise your score. In fact it could lower the score.
- How many accounts have balances.
A large number can indicate higher risk of over-extension.
- How much of the total credit line is being used on credit cards
and other "revolving credit" accounts.
Based on the evaluation of thousands of credit files, a consumer close
to being "maxed out" on many credit cards statistically has a higher
chance of having trouble making payments in the future. This is a factor
seen very frequently at Advantage Credit. A consumer may wonder why
the credit score seems low when minimum payments have been made on time
month after month. It's likely that the balance owing on the account
is over 50% and triggers the "high proportion of balances to credit
limits" scoring factor.
- Keep balances low on credit cards and other "revolving credit."
High outstanding debt can negatively affect a score. Maintain balances
at or below 50% of the available credit limit.
- Pay off debt rather than moving it around.
The most effective way to improve the score in this area is by paying
down the revolving credit. In fact, owing the same amount but consolidating
the amount onto fewer open accounts may lower the score.
- Sometimes financial planners recommend consolidating higher interest
debt into a new lower interest account.
While sensible in lowering interest rates, the strategy can backfire
in credit scores. Opening a new account with a high balance and closing
pre-existing accounts all typically lower scores for many months until
the balance comes below 50% and the new account has been open for longer
than a year. If you are in the market for a home now or in the next
12 months, avoid this mistake.
- Don't close unused credit cards as a short-term strategy to raise
the consumer's score.
- Don't open a number of new credit cards that the consumer doesn't
need, just to increase his/her available credit.
This approach could backfire and actually lower the score, depending
on the length of time the consumer has had established credit.
- Amount owing on accounts
- Amount owing on specific types of accounts
- Lack of a specific type of balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used (proportion of balances to total credit
limits on certain types of revolving accounts)
- Proportion of installment loan amounts still owing (proportion of
balance to original loan amount on certain types of installment loans)
Length of credit history accounts for approximately
15% of the weight of the score.
In general, a longer credit history will increase
the score. However, even people who have not been using credit long may
get high scores, depending on how the rest of their credit report looks.
- How long the credit accounts have been established, in general.
The score considers both the age of the oldest account and an average
age of all the accounts.
- How long specific credit accounts have been established.
- How long it has been since the consumer used certain accounts.
- If the consumer has been managing credit for a short time, he/she
shouldn't open a lot of new accounts too rapidly.
New accounts will lower the average account age, which will have a larger
effect on the score if the consumer doesn't have a lot of other credit
information. Also, rapid account buildup can look risky if the consumer
is a new credit user.
- Remember that most new accounts don't begin to positively add to
the credit history for 12-13 months.
- Time since accounts opened
- Time since accounts opened, by specific type of account
- Time since account activity
New credit inquiries account for approximately
10% of the weight of the score.
People tend to have more credit today and credit
scores reflect this fact. However, research shows that opening several
credit accounts in a short period of time does represent greater risk—especially
for people who do not have a long-established credit history. This also
extends to requests for credit, as indicated by certain "inquiries" to
the credit reporting agencies, resulting from requests by the consumer
for new credit. An inquiry is a request by a lender to get a copy of an
applicant's credit report. Credit scores do a good job of distinguishing
between a search for many new credit accounts and rate shopping, which
is generally not associated with higher risk.
- How many new accounts a consumer has.
The score looks at how many new accounts there are by type of account
(for example, how many newly opened credit cards the consumer has).
It also may look at how many of the accounts are new accounts.
- How long it has been since the consumer opened a new account.
Again, the score looks at this by type of account.
- How many recent requests for credit has the consumer made, as indicated
by inquiries to the credit reporting agencies.
Inquiries remain on the credit report for two years, although credit
scores only consider inquiries from the last 12 months. Consumers' own
requests for credit reports are not counted in the score. Also, the
score does not count requests a lender has made for a consumer's credit
report or score in order to make the consumer a "pre-approved" credit
offer, or to review the consumer's account with them, even though he/she
may see these inquiries on the credit report. There have been recent
changes in the way the FICO models count inquiries for scoring purposes.
It is fairly complex and hard to understand but the basic premise is
that all auto and mortgage inquiries made within a 14 day period are
counted as one inquiry for scoring purposes. The scoring models also
ignore all inquiries within 30 days of scoring. Therefore, when rate
shopping, try to make your inquiries within a 2 week period.
- How long since credit report inquiries were made by lenders.
- Whether the consumer has a good recent credit history, following
past payment problems.
Re-establishing credit and making payments on time after a period of
late payment behavior will help to raise a score over time.
- Keep rate shopping within a two week period.
- Re-establish credit history if there have been problems.
Opening new accounts responsibly and paying them off on time will raise
the score in the long term.
- Remember that there is no score "cost" to request your own credit
This won't affect the score, as long as the consumer orders his/her
credit report directly from the credit report agency or through an organization
authorized to provide credit reports to consumers.
- Number of recently opened accounts, and proportion of accounts that
are recently opened, by type of account
- Number of recent credit inquiries
- Time since recent account opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive credit history following past payment
The types of credit used accounts for another
10% of score's result.
The score will consider the mix of credit cards,
retail accounts, installment loans, and finance company accounts and mortgage
loans. It is not necessary to have one of each, though Advantage Credit
has found that a credit card account, a store or other revolving account
and an installment loan (i.e. home or auto loan) provide good results
over time. The credit mix usually won't be a key factor in determining
the score, but it can be more important if there isn't a lot of other
information on which to base a score.
- What kinds of credit accounts the consumer has, and how many of
The score also looks at the total number of accounts the consumer has.
For different credit profiles, how many is too many will vary.
- Apply new credit accounts only as needed.
Don't open accounts just to have a better credit mix; it probably won't
raise the score.
- Have credit cards, but manage them responsibly.
In general, having credit cards and installment loans (and paying timely
payments) will raise the score. Someone with no credit cards, for example,
tends to be a higher risk than someone who has managed credit cards
- Recognize that closing an account doesn't make it go away.
A closed account will still show up on the credit report, and may be
considered by the score. And if you close an account that has negative
payment information from the past, it will be bumped up in it's recency
value because you will have changed the "date of last activity" to the
On a mortgage credit report, along with a credit
score, up to four "score reason codes" are also delivered. These explain
the top reasons why the score was not higher. If a request for credit
is declined and the credit score is part of the reason, these score reason
codes can help explain why the score wasn't higher. If the reason for
a low score is not obvious, the reason codes are the first place to look.
In fact, the score reasons are more useful than
the score itself in helping the broker and the consumer determine whether
the credit report might contain errors, and how the consumer might improve
his/her score over time. However, if the report indicates a high score
(for example, in the mid-700s or higher) some of the reasons codes may
not be very helpful. They may be marginal factors related to the last
three categories described previously (length of credit history, new credit
and types of credit in use).
- Serious delinquency.
- Serious delinquency and public record or collection filed.
- Derogatory public record or collection filed.
- Time since delinquency is too recent or unknown.
- Level of delinquency on accounts.
- Number of accounts with delinquency.
- Amount owed on accounts.
- Proportion of balances to credit limits on revolving accounts is too
- Length of time accounts have been established.
- Too many accounts with balances.
CreditXpert is a score improvement report that
is prepared using your particular credit file. It is available through
an Advantage Credit mortgage broker, realtor or other approved customer.
It examines the specific tradelines in your credit file, analyzes them
for opportunities for improvements, recommends specific actions and estimates
what score boost the recommended actions will have. It can tell you, for
example, that by moving a certain portion of balance from one account
to another may raise the score an estimated 10 points. Some actions may
have immediate effects; others will demonstrate gains over time.
If you'd like to work with an Advantage mortgage
broker, realtor or lender and use CreditXpert to help raise your credit
score, contact us online.
Corrections must be made at the bureau level
in order for the information to affect the score. Remember that the score
is based on the information in the consumer's file at the bureau level.
Advantage Credit is a credit report reseller and does not own nor maintain
the information contained in the credit reports.
First, the consumer must write
a letter of dispute regarding the erroneous information reported by the
reporting bureau referencing the tradeline, account numbers, what is incorrect.
Send the letter overnight mail, with a return receipt requested.
Under the federal Fair Credit
Reporting Act effective October 1, 1997, a credit repository has 5 days
from the receipt of a written investigation request to contact the appropriate
credit grantor about investigating the complaint(s). The consumer should
receive a reply back within 30 days of the original repository notification.
Within 5 business days after
the completion of the investigation, the repository must send a written
report to the borrower with its findings (and a copy of the revised report
if there was any change). The findings will state one of the following:
- there is an error and the credit report is corrected.
- there is no error, so the report stands.
- the credit grantor(s) did not respond in the allotted time, so the
disputed item(s) is dropped from the report.
If credit errors are detected, below is the contact
information for the three repositories:
Equifax Information Service
P.O. Box 740256
Atlanta, GA. 30339
Experian (formerly TRW)
P.O. Box 2106
Allen, TX. 75002
P.O. Box 390
Springfield, PA 19064-0390
The service allows mortgage brokers to have
credit report errors corrected and a score recalculated within 3-10 business
days. The corrections are made at the repository level and require specific
documentation, as well as Advantage Credit's validation of the error with
This service is only available
during the process of actually applying for a home loan. It is not available
directly to consumers, nor is it available outside of applying for a home
loan. When used, however, it can save the usual 30-60 day cycle for processing
errors directly by consumers.
Generally, Advantage Credit
needs to know what the error is, why it is an error, and be provided proof
of what the correction is that should be made. For example:
- Copies of bankruptcy papers, copies of lien releases, paid receipts,
letters from the creditor on the creditor's letterhead specifically
stating the corrections that are to be made. Arbitrary doesn't work
here, specific information is needed.
- Be sure to note on collection accounts or bankruptcy corrections,
that the last date of activity column shows the date the collection
was paid off or the bankruptcy was discharged with "0" balances. Anything
else will drive the scores down, not up.
Advantage Credit verifies the
information and then sends the verified information to the credit bureau
reporting the error to re-verify. The bureau then physically changes the
raw data via computer, installs a buffer against future tape update changes
and confirms the change is in place. The Advantage Credit broker can now
run a new credit report and you will have new scores, assuming there are
no other changes in data.
For more information, see the Accurate
Credit section. For information about Advantage Credit mortgage brokers,
realtors or lenders in your area, contact
Each bureau's search criteria are different,
and each assigns importance to search information differently.
As you can see below, Social
Security numbers are not most important.
||Last Name, First Initial, Address, SSN
||Zip Code, Address, Last Name, First Name, SSN, AKA/Alias Name
||Last Name, First Name, SSN, Address
- The borrower's file had no activity within the last 6 months.
- Two of the three pieces of information entered to access the file
do not match the repository database.
Also, the borrower's name and address could be
different in each repository database.
The bureaus recommend that brokers do the following:
- Enter the borrower's name as it appears on their Social Security card.
- If there is an additional name, do not hyphenate it, but enter it
as a middle name.
- Determine if the name on their Social Security card and their driver's
- Always use a suffix (Jr. or Sr.) when applicable.
- Determine if their current address matches the driver's license. If
not, and depending upon the time they have lived at both addresses,
enter both the current and previous addresses.
- Ask what other names they have used.
For questions concerning credit reports, here is the contact information
for the three major credit repositories:
Equifax Information Service
P.O. Box 740256
Atlanta, GA. 30339
Experian (formerly TRW)
P.O. Box 2106
Allen, TX. 75002
P.O. Box 390
Springfield, PA 19064-0390
Consumers can also visit the following websites for more information.