How Your Credit Score Is Derived

Developed in 1956, a Fair Isaac Corporation Score (commonly called the FICO Score) is a three digit number ranging from 300-850 and is calculated according to the following risk factors:

                     Payment History (35% of score)
                                - Payment information on many types of accounts
                                - Public record and collection items 
                                - Details on late or missed payments - specifically:

                                          - how late they were
                                          - how much was owed
                                          - how recently they occurred
                                          - how many there are

                      Amounts Owed (30% of score)

                               - Amount owed on all accounts
                               - Amount owed on different types of 
                                 accounts
                               - Whether you are showing a balance on certain 
                                 types of accounts
                               - How much of installment loan accounts is still owed

                      Length of Credit History (15% of score)

                                - How long your credit accounts have been established, 
                                  in general
                                - How long specific credit accounts have been established
                                - How long it has been since you used certain accounts

                  New Credit and Inquiries (10% of score)

                                 - What kinds of credit accounts you have and how 
                                    many of each 
                                 - Total number of accounts you have

                  Types of Credit (10% of score)

                                 - How many new accounts you have
                                 - How long it has been since you opened a new account
                                 - How many recent requests for credit you have made

What It Means
Once the borrower's score is derived, most lenders use a standard 'grading' system to categorize the results. While some lenders develop their own systems for classification of scores, below is a general guide of score interpretation. Used as a general reference, this can help you interpret the credit score you've been given based on a grading system typically used in schools:

Credit Score Grade

670 and above                            A+ to A
650                                           A-
620                                           B+ to B-
580                                           C+ to C-
550                                           D+ to D-
520 or below                               E

Keep Your Credit Clean

Credit Cleaning Tips
- Review your credit report line-by-line, specifically search for errors, omissions, duplications, and "common name" errors.
- If you encounter errors, write out exactly what should be corrected and why. You are able to add 100 words or less to your reports on questioned items. 
- You can find assistance through credit counselors which are available through the various credit bureaus.
- Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair Credit Reporting Act of 1971, if these firms fail to respond to you in writing within 30 days they are obligated to remove the disputed items from your records.
- Most merchants are willing to negotiate customized repayment plans for those that find themselves with considerable debt.
- Chapter 13 bankruptcies stay on an individual's record for seven years. Chapter 7 bankruptcies stay on an individual's record for seven years.

Judgements, Garnishments, or Liens
Liens, garnisments, etc., typically are indicators of an unstable borrower. Any judgements, garnishments, or liens must be paid in full. Prior to closing, proof that the judgement, garnishment or lien has been cleared must be obtained; this can be reflected through a clear credit report supplement or a paid receipt form from the creditor. IRS tax liens also must be paid in full. Standard property tax liens do not have to be recorded as paid in full since they are not yet due or payable. Also, the borrower is obligated to provide a satisfactory letter of explanation.

Delinquent Child Support
Child support payments must be brought current, and specific documentation from the credit reporting agency evidencing this fact must be in the file with NO EXCEPTIONS! Because of the seriousness of the delinquency/default, which in many states can cause incarceration, the A letter from the court or the legal authority responsible for collection in the city/state (e.g. district attorney, sheriff, etc.) is acceptable. A letter from an ex-spouse and copies of personal checks are not acceptable, nor is an agreed upon, but not yet completed, payment plan.

Credit Bureaus:
There are a good number of reporting agencies that can provide you your credit score. Three of the leading services for this are:

       Experian                             Equifax                           Trans Union

 www.experian.com             www.equifax.com                www.transunion.com

   1-888-397-3742                 1-800-685-1111                   1-800-888-4213