What is a credit score? How to decipher a Credit Report.
Before deciding on what terms lenders will offer you on a loan (which they base on the "risk" to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they're named after their inventor!). Your FICO score is between 300 (high risk) and 850 (low risk).
Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don't consider demographic factors is why they were invented in the first place. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent is the time your open credit account has been in use (ten year old accounts are good, six month old ones aren't as good) and fifteen percent is the variety of types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit accounts, as measured by credit scores requested.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
Keep in mind that your credit report can contain credit data on accounts that were closed and long forgotten by you. Frequently the companies have long since gone out of business or merged with other companies too. Also, just because an account is showing on your credit report doesn't mean that the creditor is still reporting on you. They could have stopped reporting on your account six years ago, but the old information will continue to show on your credit report until about seven years have passed. Creditors, aka credit card companies will frequently close accounts on their own, due to inactivity by you, but often don't report this fact to the credit repositories Equifax, Experian and TransUnion. As long as this old information is not negative in nature, then there is no reason to worry about it. You could ask these old creditors (if they still exist) to report your account as closed, but it will likely have NO impact on your credit score. If the information is negative, then often the best thing to do is to just wait out the seven years until it falls off (stops showing on) your credit report. Asking a creditor who previously reported negative information on you to change your account to show "closed" may have the unintended consequence of keeping that negative item on your credit report even longer than if you just let it alone. In other words, you might end up starting the seven year clock over again.
Refer to the following chart to help decipher all the credit report abbreviations in your report. Email me if you have any additions or corrections.
Credit Report Acronyms
Acronym
Description
Issues Cards for…
Useful Websites, Addresses, Phone Numbers
ADDM/CBUSA
Citibank issued card for Charming Shoppes, Inc.’s Added Dimensions
Key: B=Borrower account C=Co-Borrower account S=Shared account with another I= Individual account J=Joint account belonging to B and C U=Undesignated or unknown which belongs to A=Authorized user on account that belongs to someone else
EF or EFX or ECIS
Equifax, one of the
big 3 credit
repositories or credit infomation aggregators
FCNB
First Consumers National Bank
Eddie Bauer,
Spiegel,
Newport News,
NWP
Spiegel is BK. Now called
Eddie Bauer Holdings
FCRA
Fair Credit Reporting Act
FCU
Federal Credit Union
FIA CS NA
FIA Card Services National Association (name MBNA took when it became a subsidiary of B of A)
What is a credit score? How to decipher a Credit Report.
