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
- 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
- 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.)