How Credit Scores are Calculated

If you're interested in credit report repair or a credit report dispute, it's important to understand how credit reporting agencies work.

The credit reporting agencies do not actually make your credit score or keep any real record of it. Likewise, they cannot change it. Credit scoring occurs when your credit report is put into a calculation that creates a unique credit score. As any information changes on your credit report, so changes your score. The credit score is supposed to distill all the information in your credit report, using a formula to calculate a single number that indicates your credit worthiness. The most widely known credit scoring model is the FICO score, for Fair Isaac Corp., the California company that developed the credit score calculation upon which it is based. It's designed to give lenders an idea of what kind of risk you are to give you credit or a loan.

What are the things that affect your credit score the most?

• Past delinquency: any missed payments on an account. The more recent the missed payment, the more it will hurt your credit score.
• The average daily balance and amount of credit used. If you are maxed out or close to the limit on a credit card, of you typically leave high balances on your credit cards or lines of credit, you would be considered a greater risk than someone who doesn't look at the high credit line as a license to print money.
• The age of the credit file: Fair Isaac's model assumes people who have had credit for a long time are less risky.
• The number of times a person asks for credit: the more inquiries you have on your credit report, the more it can hurt you when you're seeking credit report repair. If it appears you have been asking for a lot of credit lately, it seems like you are becoming a bigger and bigger risk with the more credit you try to take on.
• A customer's mix of credit: Someone with only a secured credit card is generally riskier than someone who has a combination of installment and revolving loans. (On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.)