Confused about your credit score? It’s all in the details, so let’s shed some light
on how your credit score actually gets calculated.
So writes Gina Monaco (www.theloop.ca) in edited excerpts from her original article* entitled Learn exactly how bureaus calculate your credit score.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Monaco goes on to say in further edited excerpts:
Here’s a typical scenario:
You and your spouse are applying for a mortgage loan. You’ve had credit for years with three or four credit cards, a car loan and a line of credit. You always pay the minimum obligation, and always on time. Your spouse, on the other hand, doesn’t use much credit, perhaps has only two or three credit lines and has a missed a payment or two in the past two years. So the lender pulls your credit report and your spouse has a higher score than you. What the ??!! It’s all in the details, my friend. Let’s shed some light on how your credit score actually gets calculated [and then review how the above situation was evaluated to come to the conclusion drawn].
What is a credit report?
A credit report is a “snapshot” of you and your credit history, ranging from 300 to 900, which the lender uses to determine your risk factor. The higher the score, the better risk you are. It includes personal information, employment information, credit information, information about judgments and collections, as well as a list of companies that have requested a credit report.
How do they determine these scores?
Credit bureaus use 5 factors:
1. Your debt payment history (35%)
Every time you make a payment or miss a payment, the credit bureau records that information on your credit report file. The two credit bureaus, Equifax and TransUnion receive information every month from creditors and scores fluctuate up or down depending on that information. Payment history makes up 35% of your credit score – that’s the biggest chunk. Had some financial issues in the past? Don’t sweat it too much — the older the information gets, the less it will impact your score. Time heals all!
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