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Understanding Your Credit Score

The Five Things That Count

Scores are part of the lending decision

What do lenders look at when deciding whether to approve a loan? Typically, lenders making almost any kind of credit decision will look at a variety of types of information, including one or more credit scores. While there are many kinds of credit scores, the most frequently used are credit bureau risk scores developed by Fair, Isaac. These are commonly known as FICO scores, although they have different names at each of the national credit reporting agencies.

A score is a number that tells a lender how likely an individual is to repay a loan, or make credit payments on time. When a lender requests a credit report and score from a credit reporting agency, the score is calculated by a “scorecard” or scoring model – a mathematical equation that evaluates many types of information from your credit report at that agency. By comparing this information to the patterns in thousands of past credit reports, scoring identifies your level of credit risk.

Type of information FICO scores consider

Listed below are the five main categories of information that Fair, Isaac score evaluate, along with their general level of importance. Within these categories is a complete list of the information that goes into a FICO score.

Please note that:

  • A score takes into consideration all these categories of information, not just one or two.  No one piece of information or factor will determine your score.
  • The importance of any factor depends on the overall information in your credit report.  For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance given any one factor in determining your score. Thus, it’s impossible to say exactly how important any single factor is in determining your score – even the levels of importance shown are for the general population, and will be slightly 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.
  • Your score only looks at information in your credit report. Lenders look at many things when making a credit decision, including your income and the kind of credit you are applying for. However, your FICO score does not reflect these facts, as it only evaluates your credit report at the credit reporting agency.
  • Your score considers both positive and negative information in you credit report. Late payments will lower your score, but having good record of making payments on time will raise your score.
  • Your score does not consider your ethnic group, religion, gender, marital status and nationality. These are, in fact, prohibited from use in scoring by US law.
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