Credit Advice

Credit Advice from Pacor Mortgage

Credit Basics

For years, consumers have been left in the dark about true credit score factors and how they affect one’s ability to get a loan. Now, with direct access to self-serve websites such as creditexpert.com and equifax.com, consumers are finally empowered to gain greater insight into personal credit, credit score myths, security against identity fraud and theft, and how to correct or improve a score. See below to have credit scores explained further.

What is a Credit Score?

A credit score is the result of a mathematical equation that evaluates many types of information that are on your credit report. Potential lenders will usually review your credit report and credit score, along with other factors, such as your ability and likelihood to repay debt.

Credit scores are often called “FICO scores” because most credit scores are produced from software based on a model developed by Fair Isaac and Company (“FICO”). For more information about FICO scores, go to www.annualcreditreport.com. You are entitled to a free copy of your credit report from Experian, Equifax, and Transunion once every twelve months.

What Makes Up a Credit Score?

The FICO score generally ranges from 300 to 850, and a higher score indicates a lower credit risk. FICO scores are calculated from many sources information in your credit report, which is based on the importance of the following five categories for the general population:

Payment History 35%
Were Payments Made on Time?
Amounts Owed on Accounts 30%
Is the balance owed close to the limit?
Length of Credit History 15%
How long have your accounts been open?
New Credit 10%
How many new accounts have been opened?
Types of Credit Used 10%
Mortgage, auto, consumer finance accounts, revolving, and installment loans.

What is Not in Your Credit Score?

Your race, color, national origin, sex, age, marital status
Your salary, occupation, title, employment information, or residence address
Any interest rate being charged on your credit accounts
Any items such as family/child support, rental agreements, credit counseling participation

What Can Affect My Score?

Your FICO score is a “snapshot” of your credit history at a given point in time, and can change based on the factors that make up your credit score.

Late Payments – Pay your bills on time and if you have missed a payment, get current.
Credit History – When you pay off a debt or collection or close an account, the credit reference still remains on your credit report for a minimum of seven years.
High Balances – Keep outstanding balances low on credit cards and other “revolving” accounts.
New Credit – If you have been managing credit for a short time, don’t open a lot of new accounts.

How to Improve Your Credit Score

Your score can improve by managing your credit responsibly over time and following some basic tips:

Make sure the information in your credit report is correct. You are entitled to one free credit report annually from the three credit bureaus: Experian, Transition, and Equifax. Visit www.annualcreditreport.com to obtain your free reports. You may also purchase a copy of your credit score report through this website.
Review your credit report for accuracy (date opened, account balance, account limit, last activity) and have incorrect or erroneous information updated.
Pay down high credit card and revolving account balances, but don’t close the account. Don’t apply for credit that you don’t need – excessive credit report “inquiries” can lower your score.
Avoid moving credit balances from one account to another just to take advantage of low introductory interest rates. The combination of “inquiries” and “new accounts” can negatively impact your score.
If possible, avoid “finance company” type credit accounts, including “90-day” and “12 months same-as-cash” accounts. Mortgage loans, installment loans and revolving credit card accounts impact your score more favorably than finance company accounts.
Keep low balances on your credit cards, less than 30% of your credit limit
Think twice before closing accounts; longer, well-managed credit histories are best
Pay on time and as agreed, late payments are considered one of the first signs of credit problems
Have a mix of credit, consider obtaining and using a credit card, decide how to use the card and repay the balance which will tells more about how you make credit decisions.
Apply for credit judiciously, recent inquiries indicate you may have taken on new debt that isn’t yet shown on your credit report or you are trying to take on large amounts of debt.
Time is the key. It takes time for the information on your credit report to update and negative information doesn’t disappear overnight.

Why is My Credit Score Different than What I’ve Seen Elsewhere?

There can be wide variances between credit scores for several reasons. The most common reasons are scoring model variance, timing, and lender reporting.

Scoring Models – there are many different credit scoring models in the marketplace which may have varying ranges and calculate different scores.

Timing – your credit score changes as your credit report changes. It can change often since new information is added to your credit report all the time.

Lender Reporting – your credit score can also be different due to Lenders reporting to one credit bureau and not another credit bureau or stops and starts in reporting.

Do credit scores change?

Your credit score changes as your credit report changes. It can change often since new information is added to your credit report all the time. Your credit score can also be different because it may have been produced by a different credit reporting agency.

Is there just one kind of credit score?

No, there are many different credit scores used by lenders.

Who calculates credit scores?

When a lender requests your score, it is calculated by the credit reporting agency. The credit score is one of many pieces of information the lender might use in evaluating your credit application.