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What factors affect the credit score calculation?

Posted on: 17th Oct, 2005 04:07 pm
What points are considered while calculating credit score?
Hi Peter,

There are certain factors which influence the calculation of your credit score. They are explained below.

1. Payment history:
About 35% of the score is dependant on this factor. Payment history includes payment related information on credit cards, installment loans and mortgage loans. It takes into account late payments, accounts sent to collection agency or any bankruptcy filings.

2. Outstanding debt:
This factor influences about 30% of the score. This includes the amount balance on all accounts. If the amount you have borrowed is close to your credit limit, then your score gets negatively affected.
Factors affect calculating credit scores

3. Credit history:
Near about 15% of the score is dependant on this element. The longer you keep your accounts open, the better will be your score.

4. Pursuit of new credit:
This affects 10% of the score and includes the number of inquiries and new accounts in the report. The time of the most recent inquiry is also noted down. It also takes into account whether payments were made in time to re-build the credit after a period of frequent late payments.

5. Types of credit in use:
The remaining 10% of the score depends on this factor. A combination of both revolving credit like credit cards and installment credit like mortgages result in good scores. This is because it is considered that borrowers who carry on with a variety of credit know how to manage their finances. But you must make sure that you make the payments in time.

Hope this information will help you.

Regards,
Blue
Posted on: 17th Oct, 2005 04:48 pm
In regards to the payment history the contributing factor that plays an important role in grading your credit rating is the amount of utilization. You can have several TL's (trade lines) that all are just short of being maxed out and this will give you a negative rating. When you bring your utilization down around 30% of the TL credit limit then this will improve your score rating. So if you have a credit limit of 1000.00 to improve your score you should bring down this balance to around 300.00. This will also help when trying to get a mortgage loan because this lowers your DTI (debt to income ) as well.

You can have several TL's that are all at the credit limit and being paid on time but won't have as much of a positive impact on your credit rating as with a lower utilization.

Another factor that would have a negative impact on your credit rating is the number of inquiries. The more you apply for credit (any type of credit) the more it will have a negative impact on your credit scores. The scoring system of FICO will realize that you are searching for credit and the more you search the more it will "think" that you are solely relying on credit to get by. So limit the amount of credit that you are applying for and make sure it is something that you really would want and can afford. When shopping for a mortgage the window for applying is 14 days from the first inquiry. So if you shop for a mortgage on the first of the month, the window would be till the 14th of the same month to shop with different lenders or brokers with the pull being counted as just one pull.


What also affects your credit rating is the different names that may be on your credit report. As an example, some people will apply for credit using half of their names (ie. Ray instead of Raymond) or they use the middle name instead of first name. You see all sorts of names on the credit report for what is the same person but the FICO system sees this otherwise. So if you have several names on your credit report, make sure that it states your name as you would in signing something.

Cliff and Sandra.
Posted on: 17th Oct, 2005 07:22 pm
Hi Cliff,

Welcome to the "Credit Rating" section. You have been helping our community for quite some time and indeed you have provided us with some very useful information.

We look forward towards your participation in this section and hope that your contribution will not only enrich our knowledge but also that of the other members of our community.

Thanks,
Caron.
Posted on: 17th Oct, 2005 08:03 pm
Hey Caron,
Its a pleasure to be here to help all that are in need of information. Lets work together to help all that come to the forums and make homeownership a reality for all that want the help and advice.

Cliff and Sandra.
Posted on: 17th Oct, 2005 08:48 pm
thanks cliff for that explanation, it cleared a lot of my confusions.

john
Posted on: 18th Oct, 2005 05:58 am
Hi John,

Welcome to MortgageFit forums.

Feel free to post any queries and share your thoughts with us, so that we can enrich and exchange our ideas. Your participation is appreciable.

God Bless You

Thanks,
Samantha
Posted on: 18th Oct, 2005 10:31 am
So how long does it take to build your credit back up, if you apply for different credit cards at stores. And how much does it bring your credit score down?
Posted on: 11th Jan, 2006 11:50 am
Hi Tommy,

It is probably the fastest way to build credit but also a trap to get you under heap of debts with use of too many cards.

Keeping too many credit cards may ruin the possibility of getting a genuine credit that you require. You should use the cards only if you can pay the complete charges in each month. This will prevent your credit going down.

Regards,
Blue
Posted on: 11th Jan, 2006 12:02 pm
Too many open accounts may drag the score down. If you close some accounts, then the score may improve and appear after 30 to 60 days.
Posted on: 11th Jan, 2006 12:40 pm
It is better to have a maximum number of four to five cards. If you have more, then you should cancel the newer ones and reduce the number.
Posted on: 11th Jan, 2006 01:44 pm
When applying for an apartment they do credit and background checks. How bad are the inquieries on your score and how long does this hit effect your score? I have had two different apartments inquire into my credit recently.
Posted on: 04th Jun, 2006 07:53 am
Hi Deb,

There is no doubt that lender will do a check on credit report. Basically, they check the credit information that how authenticates it is?

And checking is definitely getting effected with score. If you have the score below average that is 650 – 700, then it may take more time. During this period the lender will go in-depth checking and will inquire you with lots of queries.

Thanks
Posted on: 04th Jun, 2006 09:25 pm
Hi,
We went bankrupt due to an auto accident and anyway wanted to know how to get my credit score back up and how long to expect it to take right now we are 3 mths dischared and credit score is around 520. any advice would be appericated. thanks
Debbie
Posted on: 05th Jun, 2006 05:15 am
Lacaze,

No need to be disheartned upon the fact that you have poor credit. Self belief is the key and seems like you have enough of that.

The 1st thing you should do is check the report for any possible errors such as accounts that aren't yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn't be reported any longer. These small things makes huge difference.

Once you are over this this task then comes the real challenge, to start with start paying the balances of your credit card(in any) these things will surely help you. With this there is a great possibility that you will be able to improve the score by 20points. The important thing to keep in mind dont close you unused a/c for improving your credit score its not going to help you.

These small things can really help you in the improvement.
Posted on: 05th Jun, 2006 05:31 am
Hi Debbie,

Welcome to MortgageFit Forums.

As long as you are eager to improve, you will see a definite change in your credit score. Your efforts and time can bring about that change.

Try to bring your debts current and then maintain the regularity in your payments. This is the major way that is going to help you improve your score.

You can go through this section on ways to improve your score to get some more information. Don't get worried. Make a plan for your payments and try to stick to the budget that you make.

There will be definite improvements in your score. I wish you good luck.

Feel free to ask for suggestions whenever you require.

God bless you.

For MortgageFit,
Samantha
Posted on: 05th Jun, 2006 09:48 am
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