If anyone has tried to purchase a car, car insurance, a home, a boat, a motorcycle, a car or rent a place to live, and has been declined, it usually is because of their credit history. Credit Scoring is used in most aspects of granting credit. Gone are the days when people, banks or credit grantors consider the four c’s of credit: Character, Capacity, Capital and Conditions. Credit Scoring is a statistical analysis of how your bill paying habits compare with others in a similar socio-economic group.

You can actually understand the process, what is expected, and how to influence a positive outcome. It is a little more than paying your bills on time. The basics of understanding how you are scored begins with receiving a copy of your credit report. I am an advocate of obtaining credit reports every six months.
The term FICO stands for Fair Isaac Company. This company has developed a mathematical formula to determine how high of a risk you are as a credit applicant. The formula is nothing short of complicated and confusing! Unfortunately, your score really isn’t your score.

It’s a score based on the performance of millions of people. We have done extensive research on the scoring model and have learned: The FICO score is developed by taking millions of people, their payment histories, balances, credit limits, number of open accounts and the percentage that don’t pay, then coming up with several different averages to justify credit worthiness.
The score consists of up to 300 different characteristics, which are then categorized to 10 different sections. We understand the 10-card scoring system as well as the 300 encoded characteristics that are used: 35% of your score is based on Payment History; 30% of your score is based on Account Balances; 15% of your score is based on Length of Credit History; 10% of your score is based on New Credit Inquiries; and 10% of your score is based on Types of Credit in Use.

Raising your credit score can be even more complex than disputing the accuracy, validity, and timeliness of a negative item on your credit report. Remember that removing inaccurate and unverifiable information from your report will increase your scores in some instances by 10 to 15 points. Those points will make the difference in being eligible for a mortgage or not. But in order for you to benefit the most from your score, you must take a look at your credit situation as a whole.

Credit bureau scoring is a scientific way of assessing how likely a borrower is to pay back a loan. A Credit Bureau Score is based on the data available in the borrower’s credit report. The Score measures the risk of a borrower to the lender or investor. It is not a measure of a borrower’s income, assets, or bank account, although those and other factors are still considered by lenders and investors, independent of the Score. Fair Isaac Credit Bureau Scores range from approximately 450 to 850 points, and are available through the three national credit reporting agencies: (Equifax, Trans Union, and TRW).

The scoring programs reside at these credit bureaus and are called: BEACON at Equifax (CBI) EMPIRICA at Trans Union and The TRW Fair, Isaac Model at TRW. This Score is calculated at the repository, and is based solely on the data within that repository’s individual credit file. Fair Isaac is not able to access a borrower’s credit data or calculate a Score.

A Fair Isaac Credit Bureau Score, sometimes referred to as a FICO Score, is calculated by a system of scorecards. Through this process, Fair Isaac identifies distinctive credit patterns. Each pattern corresponds to a likelihood that a consumer will make his or her loan payments as agreed in the future. The Score is based on all the credit-related data in the bureau report -- not just negative data such as missed mortgage payments or bankruptcies.
Swygert is a credit counselor with the Credit Corner, 9955 South Post Oak #415, Houston, TX 77004. Call 713/799-8570 for more information.

The types of credit information used in the credit bureau scorecards are typically the same items an underwriter would use to make a credit decision for a mortgage.  These can include:

Payment history -
Public record and collection items
Outstanding debt -
Number of balances recently reported
Average balances
Debt Credit Ratio
Credit history -
Number of inquiries and new account openings in the last year
Amount of time since most recent inquiry
Types of credit in use -
Bank card, travel and entertainment cards
Department store cards
Personal finance company references
Installment loans

Fair Isaac observes tens of thousands of credit report histories of mortgage borrowers to determine
which credit report items or combination of items are the most predictive of future risk; this data indicates the amount each item should contribute to a credit decision.

A Fair Isaac Credit Bureau Score is a means of rank-ordering potential borrowers based on the likelihood that they will pay their credit obligations as agreed. A higher Score indicates better credit quality. If all other things are equal, borrowers with a Score of 660 are less likely to default on a loan than
borrowers with a Score of 580.

The Fair Isaac Credit Bureau Score Mode]s at each credit repository are of similar design and the Scores are scaled to indicate a similar level of risk across all three bureaus. In other words, a Score of 680 from on bureau will represent the same relative risk as a Score of 680 from another bureau. This risk is defined in terms of the number of accounts that remain in good standing compared to those that default.  Often times people will ask how to improve their credit score - do not pay any one to remove items off your credit, that is something you can do yourself for the price of a stamp. Dispute items from your credit reports, pay delinquent accounts and ask for a copy of a paid in full statement.