goal is to be YOUR
I came across this article in the Keeping Current Matters Blog and thought it would be of interest.
Basics of Credit Scoring
Today, we are going to be centering on the basics of an increasingly important portion of a buyers mortgage application the credit score.
First, the 3 major national credit bureaus are: Experian (XP), Transunion (TU), and Equifax (EF) .But better terms to describe their function are:
they are huge holders of data; information about you and millions
of other people.
1. What is a Credit Score?
Its a number that, at a glance, helps lenders determine how
likely you are to make your proposed payments on time.
* There are different score
formulas depending on what you are applying for
.a mortgage, credit
card, auto loan, insurance, or even if you are not applying for anything
at all and get a consumer score directly from one of many
websites that advertise scores these days.
What makes up the score? (The
info below is from www.myfico.com).
a. Account payment information
on specific types of accounts (credit cards, retail accounts, installment
loans, finance company accounts, mortgage, etc.)
a. Amount owing on accounts.
a. Time since accounts opened.
4. 10% of the score is based New Credit and Inquiries
a. Number of recently opened
accounts, and proportion of accounts that are recently opened, by type
a. Number of (presence, prevalence,
and recent information on) various types of accounts (credit cards, retail
accounts, installment loans, mortgage, consumer finance accounts, etc.).
This is always a hot topic because borrowers think they will hurt their score because their credit report is pulled. But as explained above, New Credit only accounts for 10% of a persons score, and of that, inquiries is only a part. Also, keep in mind what an inquiry represents application for additional credit. If your credit report and score shows that you are a responsible borrower, then applying for more credit will have a minimal affect on your score. But if you appear to be an irresponsible borrower, then the inquiry may drop your score a few points, or several points.
Note what Fair Isaac itself says about inquiries at www.myfico.com:
1. For many people,
one additional credit inquiry (voluntary and initiated by an application
for credit) may not affect their FICO score at all. For most people, a
credit inquiry will only decrease their FICO score by a few points.