A large part of today’s lending trend is to evaluate borrowers on their willingness to repay debt in the form of a credit score.

Scores can range from 300 to 900 with a typical score somewhere between 620 and 740 allowing more borrowers to fit into regular home loan programs. Borrowers with scores below 620 are more difficult to find financing for, but it can be done. Borrowers with scores over 720 are considered “Grade A”!

Credit scoring has made it easier for people to get credit.

In much the same way that guys rate girls, credit scoring has become widely used in the credit business.

A guy might say, “She’s a 10!”

In credit scores that would make her 760, but she would have to be dressed to the nines, having her best hair day, and perfectly done makeup. (If she were a doctor, from a wealthy family, was a perfectionist for being on time, and lived in the mid-west she’d be an 850!)

Suppose another guy says “She’s a 9.5!” That would be the difference between the Experian score and the Transunion score. A third guy might say she’s a 9.75. He’d be reporting for Equifax!

Essentially all the guys agree that she is very attractive and she’d be the girl most sought after for hot dates. If she were applying for credit she would get the best rates for credit cards, auto loans, and home loans.

While all the guys didn’t rate her same, they all agreed she was very attractive.

Since beauty is in the eye of the beholder, it makes sense to find out what the Beholder is looking for!

Anyone with “average” beauty would score between 650 and 680. This would assume the very best hair day and the character trait of being on time!

I am sure you get the idea! You want your credit scores, like your appearance to be at its best when people are paying close attention to it.

Now let’s go over what actually goes into a credit score:

Credit scoring is a complex mathematical formula that comes up with the score. There are many things that go into a score.

A lot more is known about what does not go into a score than what actually does.

The score is ONLY reflective of the credit contained in it; it does not consider ethnic group, gender, religion, marital status or nationality. These are, in fact, prohibited from use in scoring by US law. If the credit bureau does not have credit information, then that information is not included in that company’s credit scoring. For this reason, different companies may have varying scores.

There are three main credit bureaus, also called CRAs. They are Experian, Equifax, and TransUnion.

35% of a borrower’s score is determined by their track record. How they have handled credit in the past, if they have paid promptly or slowly, and if there are any judgments, tax liens, collections, wage attachments, etc.

30% of the score is based on how much the Borrower owes . How much is too much? Owing a great deal of money on many accounts may indicate that a person is overextended and this can lead to slow payments or no payments.

15% of the score is based on the length a borrower’s credit history can be documented. Consumers who have had use of credit for only 10 years or less are considered “newbies”.

10% of the score is based on the recent activity to the credit; i.e. if new accounts have been added, if they have applied for new credit, or if they are “shopping” different companies for credit. The number of credit inquiries can affect this part of the score.

Lastly, 10% of the score is reflective of the types of credit in use. A healthy mix would be a real estate loan, car loan, and a few credit cards with remaining credit available on the accounts.

With credit scores weighed so heavily in lending decisions, it is important that consumers insure their credit is being reported accurately.

New laws have passed that enable all consumers to get a free copy of their credit report (not scores) each and every year. The scores can be ordered with the report for an additional fee.

Equifax Information Services www.equifax.com Experian www.experian.com Trans Union www.transunion.com Sample Letter Template