How scores are calculated

Lenders create models by reviewing a set of consumers, examining their credit profiles and identifying common variables.  Using this information, they build statistical models that assign weights to each variable.  Lenders then combine these weights to create a credit score.

Thousands of credit-scoring models are in use in the credit industry.  Different models will consider different variables for different types of credit.  For example, an auto loan would more closely consider payment statistics related to auto loans.

Generally, positive credit characteristics will make your score higher and help you to qualify for loans and better interest rates.  Negative characteristics will make your score lower and interfere with your ability to get the best loans/rates.

What Affects a Credit Score?

Although many different scoring models exist, most use the following factors, though their importance in each model may vary:

• Payment History: late payments on past and current accounts will lower your score, while payments made on time will boost your score
• Public Records: collection items, bankruptcies, and judgments will lower your score
• Amounts Owed: balances over 50% of your credit limits will lower your score, aim for balances that are less than 30% of your credit limit
• Length of Credit History: the longer the history, the better
• New Accounts: opening multiple new accounts in a short period of time may lower your score
• Inquiries: a large number of hard inquiries (where you have applied for credit) may lower your score
• Accounts In Use: too many open accounts can lower your score, whether the accounts are in use or not
• Types of credit: the types of credit you have (car loans, credit cards, department store cards, etc), a good balance will look best

What is NOT Considered in Your Credit Score?

The following factors are not considered when determining your credit score:

• Your 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 Protection Act
• Your age: may be considered in some scoring models, but not FICO®
• Your salary, occupation, title, employer, date employed, or employment history: lenders may consider this information separately, but it is not a factor in your credit score
• Where you live
• Any interest rate being charged on a particular credit card or other account
• Any items reported as child/family support obligation or rental agreements
• Certain types of inquiries (requests for your credit report or score): requests made by you, an employer, and any request from lenders without your knowledge are not included
• Any information not found in your credit report
• Any information that is not proven to be predictive of future credit performance
• In Canada, mortgage information is not used to calculate your score

How often does a credit score change?

Your credit score will fluctuate as the items in your credit report change.  For this reason, scores are only generated when a lender requests your report and are not stored as part of your credit history.

Will inaccurate information in my credit report affect my credit score?

If the inaccurate information is used as part of a credit score calculation, then your score will be affected.  You should always make sure that the following items reflect accurate information on your report:

• Payment History
• Public Records
• Amounts Owed
• Inquiries