Moneywise with Kelvin Boston | The Score About Your Credit Score

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The Score About Your Credit Score

By Kelvin Boston
Boston Media, Inc.

You may have applied for credit recently and were told you were being denied because your credit score was too low. Depending on the credit reporting agency, the credit score may have been referred to as a Beacon score, a FICO score or less typically, Empirica.

The credit score and its interpretation and importance to consumer credit is escaping the notice of many consumers who still feel they can simply “explain” the circumstances of the late or non payment accounts on their credit report and get the loan based on the lender’s “feeling” their sincerity.

Well, not these days. The credit score or risk score is an unemotional, somewhat objective number lenders use as a critical tool for standardizing lending in their industry. The score is a benchmark number or starting point that helps lenders assess risk and determine how likely it would be for a person to whom they lend money to repay the debt as agreed. The scoring system is based on a mathematical formula that takes into consideration activity in your credit history.

“Each of the three largest credit reporting agencies has its own algorithm,” says Jamal Bennett, a mortgage broker with Pico Funding in Los Angeles, “but the end result is about the same. Lenders use the score as a benchmark. A high score is a starting point. But other things can help or hurt you.”

Some of those helpful things are new accounts paid on time and few outstanding loans. The things that hurt and drag down the scores are high debt, frequency of payments over 30 days late, bankruptcies, judgments, collections and owing out more than your income. Even inquiries by financial lending institutions can drop the score by two or more points, although personal inquiries and inquiries by credit card companies making “promotional” offers will not. The scoring does not consider age, race, employment, residence, marital status, religion, national origin, sex or income. However, a lender will plug in income in establishing its ratio to debt as part of their consideration to lend or not.

Credit scores generally do not stay the same. They fluctuate within a few points influenced by the activity on your accounts – not just the bad and the ugly activity but the good as well. Payment updates, or the addition of a new account can cause a small blip up or down.
However, scores are not stored as part of your credit history. Rather, scores are generated when a lender requests your credit report and it is included with the report.

Scores can be as low as 350 and high as 840. But most lenders won’t lend with a score under 500. From 620-640 is average with around 830 the highest. Low interest rate banks want at least 640, middle to high interest banks want 540 or higher.

However, even a score of 700, which would be regarded as great, can be denied credit if a foreclosure appears in the report.

The three large reporting agencies are Experian (formerly TRW), Equifax and TransUnion. Experian uses FICO also known as Fair Issac; Equifax uses Beacon and TransUnion applies Empirica.

As consumers become more savvy about finances, you get ahead of the game when you know the score.

© Copyright 1997-2005 Boston Media, Inc. and New River Media, Inc. All rights reserved.

You may have applied for credit recently and were told you were being denied because your credit score was too low. Depending on the credit reporting agency, the credit score may have been referred to as a Beacon score, a FICO score or less typically, Empirica.

The credit score and its interpretation and importance to consumer credit is escaping the notice of many consumers who still feel they can simply “explain” the circumstances of the late or non payment accounts on their credit report and get the loan based on the lender’s “feeling” their sincerity.

Well, not these days. The credit score or risk score is an unemotional, somewhat objective number lenders use as a critical tool for standardizing lending in their industry. The score is a benchmark number or starting point that helps lenders assess risk and determine how likely it would be for a person to whom they lend money to repay the debt as agreed. The scoring system is based on a mathematical formula that takes into consideration activity in your credit history.

“Each of the three largest credit reporting agencies has its own algorithm,” says Jamal Bennett, a mortgage broker with Pico Funding in Los Angeles, “but the end result is about the same. Lenders use the score as a benchmark. A high score is a starting point. But other things can help or hurt you.”

Some of those helpful things are new accounts paid on time and few outstanding loans. The things that hurt and drag down the scores are high debt, frequency of payments over 30 days late, bankruptcies, judgments, collections and owing out more than your income. Even inquiries by financial lending institutions can drop the score by two or more points, although personal inquiries and inquiries by credit card companies making “promotional” offers will not. The scoring does not consider age, race, employment, residence, marital status, religion, national origin, sex or income. However, a lender will plug in income in establishing its ratio to debt as part of their consideration to lend or not.

Credit scores generally do not stay the same. They fluctuate within a few points influenced by the activity on your accounts – not just the bad and the ugly activity but the good as well. Payment updates, or the addition of a new account can cause a small blip up or down.
However, scores are not stored as part of your credit history. Rather, scores are generated when a lender requests your credit report and it is included with the report.

Scores can be as low as 350 and high as 840. But most lenders won’t lend with a score under 500. From 620-640 is average with around 830 the highest. Low interest rate banks want at least 640, middle to high interest banks want 540 or higher.

However, even a score of 700, which would be regarded as great, can be denied credit if a foreclosure appears in the report.

The three large reporting agencies are Experian (formerly TRW), Equifax and TransUnion. Experian uses FICO also known as Fair Issac; Equifax uses Beacon and TransUnion applies Empirica.

As consumers become more savvy about finances, you get ahead of the game when you know the score.