Credit Scoring 101 - START HERE!

[RobertEG]

Learn, I would love to share my spreadsheet, but this forum does not allow the posting of individual information.  If there were some way I could send to to anyone on the forum who would like to look at it, I would be more than willing to share.

[Anonymous]

Hello ~

I'm new to this, so please bear with me. I have a question ~ I'm going to apply to finance a car soon. I had pitiful credit in 2004, but slowly and surely have drug it out of the mud so that it is now respectable ~ about 730.

When I apply to finance the car, will the fact that I have late payments four years ago affect the car company's decision on my finance request eventhough my credit score now is pretty decent?

[haulingthescoreup]

Hi, naf, welcome to the forums! How late were the lates? Were they each 30-day lates on 4 different account, a 30-60-90-120 on one account, etc?

I think that since they were that long ago, and your payment history has been spotless since then, you should be OK. If you had lates 60 days or longer, you might need to be prepared to explain them, but that shouldn't be a big deal.

Is your 730 a FICO score? The scores that you get from Experian, TransUnion, and credit monitoring services like TrueCredit are FAKO's, so if you don't know your 3 real scores, you might want to check.

[Anonymous]

I have a low credit score and I want to raise it up. I have about 5000 in credit card debt and I would like to pay it off with my tax refund. I can take the balance down to about 1800. How much could my score go up and how long are we talking

[Anonymous]

Why are the 3 Fico scores so different.  One has me as Very Good, another as Good, and another as Not Good.  If I want to buy a new car, will they only consider my low score on Equifax?

[Anonymous]

I have a question regarding mortage scoring. My mortage broker pulled my credit and they had a different score than i had pulled. They go through NCO to pull redit.  I cannot understand. I purschased the 3 in one my fico and i also went to each individual site and purchased the reports. I had all the same scores and she was coming back with a lower score of about 20 points on all 3 cra. She says that they have a different scoring system for mortages. Is this true? How am i ever going to know when i have the correct middle score if everyone has different scores? This is stressful lol

[RobertEG]

The score you get from myFICO is the generic credit score based on the general FairIsaac credit model algorithm.  This is the only score made available directly to consumers.  However, FairIsaac and larger lenders ALSO generate more specific models that take into account risk analysis that is more specific to each specific market, such as auto and mortgage loans.  Auto lenders give more emphais on prior history in paying auto  loans, which is more predictive for their market.  Unfortunately, these are not available directly to consumers.  These models are proprietary.  I suggest that you look at the publication titled "Credit Scoring 101" presented by FairIsaac before the FTC on July 22, 1999 (do a Google search), where some of these factors are discussed, and their resulting risk analysis.

So, your conclusion is correct.... you cannot accurately predict, using the generic consumer score that you receive on myFICO, what score a specific lendor might use when evaluating your application for credit.  It is just the way it is.  Credit scores are not generated for consumers, and the CRAs were forced to make their generic consumer scores available to the public only after Congressional action in the Fair Credit Reporting Act.  The CRAs generate credit scores for lendors, and not for consumers. 

I also highly recommend reading "Federal Reserve Bulletin, Summer 2004" for an excellent discussion of credit report and credit score accuracies.

[Anonymous]

Hey All,
I have a couple of questions specific to FICO scoring, that I'd like clarified pls...

1. Is it better to have cc's issued from different financial institutions? I currently have a cu Visa and am thinking about applying for their MC, but am not sure if it's "better" (score wise) to just get a mc from another institution?
2. Student loans: do they count towards "credit history/age" the same as a cc does? For example, if there is a 15yr old student loan on a profile, and a 2yr old cc on a profile, if the cc is closed what is the impact beyond average history age?
3. when referring to "using only 50% of available credit", does that 50% include mortgage, pers loan, auto loan etc?

Example: Let's say my credit profile looks like this
Mortgage
Pers Loan
Auto Loan
Store card 1
Store card 2
Credit Card 1
Credit Card 2
Credit Card 3

In total, I have 8 lines of credit/potential debt, therefore only 4 should be reporting a "balance owing".

Those 4 would be:
Mortgage (automatic)
Pers Loan (automatic)
Auto Loan (automatic)

Now I only have 5 cards left to play with, so only 1 ONE should be reporting a balance (1-9%) monthly? While the other 4 should remain at 0 (which equals to 1/2 of all credit lines). Or does the 50% utilization only apply to the credit/store cards. Since I have 5, then only 2 should be reporting?

Been confused about this for a while...Thanks!

[RobertEG]

This question has been bantered about on this forum forever, but I have yet to hear a definitive answer.  Does the total number of active credit cards factor directly into the FICO scoring?  I ask this because FairIsaac seems to say that it does.
Sure, I have seen many opinions on this, but in reviewing the presentation made by FairIsaac before the FTC back in 1999 (Titled “Credit Scoring 101,”  FTC, July 22, 1999), they presented a slide 32 that shows credit risk for this factor is the lowest for consumers with 2 bank cards, and that credit risk rises above that, and in fact doubles when the number of cards reaches 8 or more.  This would imply to me that their risk model would, in the credit mix category, give max points for two cards, and only half of that if the number of cards reaches 8 or more.  Their scoring algorithm is based on their risk assessment.  I rely on what FairIsaac has posted as their view of risk, and have never seen anything more concrete to support the opinion of some that having 8 or more cards is ok, and does not hurt score, providing that util on each is maintained under 10%, and that at least half carry zero balances. 

I don’t say this to entice anyone to close out existing cards, for I realize that might hurt in both the other CL (%util)  and time of credit categories, but it can be important when viewed from the perspective of those seeking additional cards.  Is it a factor, or is it not?

[RobertEG]

The FICO % util of credit category, which is 30% of total FICO score, has two separate components, each scored separately, and then combined to reach the 30%.  The most inportant component is %util of revolving credit (credit cards), which account for a much greater wieghting in this category than installment (auto, personal, mortgage) loan util, since revolv credit is unsecured, and thus more risky to the lender.  My experience is that revolving util counts three time as much as install util in the score.  They thus view your util of revolving credit as a better indicator of you payment risk, knowing that you will pay the mortgage and car loan before shelling out bucks to BOA, and thus your potential risk when deciding to offer you new revolving credit.

Thus, they know that a consumer will, if in a financial pinch, pay revolving last, and that revolving debt is also not secured, so your history in this category is their way of assessing what you wil do when the financial  "balls are to the wall," so to speak.

It is simply risk analysis on their part, whiich in the end, is what the FICO score really is.

Message Edited by RobertEG on 02-06-2008 05:54 AM

Message Edited by RobertEG on 02-06-2008 05:58 AM