Credit Scores

A credit score is an indicator of how likely you are to default on a loan or credit card in the next 24 months. This information is used by credit grantors when evaluating your credit for approval. Your BEACON®, FICO® or EMPIRICA® score is based solely on information in your credit file maintained by the credit reporting agencies. Other scores may be based on a combination of credit information and other information that you supply on your credit application.

The way you have handled credit in the past may indicate how you will manage credit in the future. Credit scores cannot predict with certainty how you will manage credit, but they do provide an objective estimate of how likely you are to repay on time and according to terms.

 

How Are Scores Calculated?

Your credit report is the basis of your FICO® score. The report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you, by court records and by you. The FICO score analyzes information from the trade line, inquiry, public record and collection sections of your credit report.

A FICO score evaluates five main categories of information in your credit report, and compares this information to the patterns in hundreds of thousands of past credit reports. These five categories are, in order of importance:

How are credit score calculated

RMCN 3D PIE

1. Payment history — what is your track record? 35 % of the score

Risk predictors here look at:

· Severity – how bad are the delinquencies?

· Recency – how recent are they?

· Frequency – how many times did it occur?

2. Amounts owed — how much is too much? 30% of the score

Risk predictors here look at:

· Large outstanding balances

· The ratio of balances to credit limits

3. Length of credit history — how established is yours? 15% of the score

Risk predictors here look at:

· Age of the trade lines – (the age of the oldest account, the average age of accounts, or both).

4. New credit — are you taking on more debt? 10% of the score

Risk predictors here look at:

· Number of inquiries and new account openings

5. Types of credit in use — is it a healthy mix? 10% of the score

 

Risk predictors here look at:

· Number of trade lines reported for each type: bankcards, retail, department store cards, installment loans, etc.

Vantage Score

VantageScore was created by the three major credit repositories, Equifax, Experian, and TransUnion. VantageScore is a highly predictive model that uses an innovative, patent-pending scoring methodology to provide lenders with a consistent interpretation of consumer credit files across all three major credit reporting companies. This helps lenders more accurately evaluate the creditworthiness of borrowers, and many Americans who use credit infrequently.

This system predicts the likelihood of future serious delinquencies (90 days late or greater) on any type of account. When the credit is pulled this model it returns a score range of 501-990 (higher scores represent a lower likelihood of risk). A consumer’s score is based primarily on the last 24-month of a consumer’s credit file. There are up to four score factor codes and a fifth FACTA reason code (Spanish version available) in this model. All three major credit reporting companies can access this information and it ignores “authorized-user” tradelines to assess credit risk.

Vantage Score

Under VantageScore, credit scores range from a low of 501 to a high of 990. Each 100-point interval corresponds to a letter grade, in ascending order. A score of 501 to 600, for example, would translate into a grade of “F”, while someone with a score greater than 900 would receive an “A.”

  • 901 to 990 = A

  • 801 to 900 = B

  • 601 to 700 = D

  • 501 to 600 = F

901-990 A (Super Prime)

Applicants who fall in this range are considered by most creditors and lenders as the most creditworthy borrowers. Thus a borrower in this category will get best rates and terms on a loan from creditors.

801-900 B (Prime Plus)

Borrowers in this category get good rates and good terms from creditors. Most of the lenders view the consumers falling into this category as creditworthy

701-800 C (Prime)

Usually lenders offer reasonable rates to the applicants within this score range. However, some lenders may wish to analyze in depth the credit history of consumers in this category in detail and may need additional documentation in order to extend favorable terms.

601-700 D (Non Prime)

Consumers in this category will have lot of trouble in getting loans by the creditors. However, a borrower belonging to the non prime range can get credit on less favorable terms from lenders.

501-600 F (High Risk)

Many lenders generally prefer to turn down the application form submitted by the applicants belonging to the high risk range. Others may offer credit but will require deposit accounts to protect the loan.

The top VantageScore is 990, in contrast to the top FICO score of 850. You could multiply your VantageScore by 0.86 (850/990) to get a rough approximation of your FICO score.

A VantageScore® evaluates of six basic factors. Each factor plays a vital role in evaluating your VantageScore®. Each category is not weighted equally. They are listed below in order of importance with their estimated percentages:

1. Payment history is 32 % of the score – Your payment history basically shows how regularly you’ve paid your debts.

2. Utilization of available credit is 23 % of the score – – The amount you are using from your available credit.

3. Credit balances is 15 % of the score – The total amount of debt that owe to the lenders and creditors.

4. Length of credit history and types of credit is 13 % of the score It includes the duration of your credit history and the types of credit you have.

5. Recently opened credit accounts are 10 % of the score – The number of credit inquiries you have made and the currently opened credit accounts.

6. Available credit is 7 % of the score – The total amount of credit available with you.


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What types of information are NOT used in calculating my BEACON®, FICO® and EMPIRICA® score?

  • Your race, color, religion, national origin, sex or marital status
  • Your age
  • Your salary, occupation, title, employer, date employed or employment history
  • Where you live
  • Certain types of inquiries such as promotional, account review, insurance or employment related inquiries
  • Any information not found in your credit file
  • Any information that is not proven to be a predictive of future credit performance

To give lenders a broad view of your credit history, the BEACON®, FICO® and EMPIRICA® score takes into consideration both positive and negative information from all five categories. Your BEACON®, FICO® and EMPIRICA® score changes when information is added, changed or removed on your credit report.

Although each credit reporting agency formats and reports credit information differently, all credit reports contain basically the same categories of information.

 

When a lender receives your BEACON®, FICO® and EMPIRICA® score, up to four score factors are also delivered. These explain the top reasons why your BEACON®, FICO® and EMPIRICA® score was not higher. If the lender rejects your request for credit and your BEACON®, FICO® and EMPIRICA® score was part of the grounds for his/her decision, score factors help the lender tell you why your score wasn’t higher.

Score factors are useful in helping you determine whether your credit report might contain errors, as well as how you might improve your score over time. However, if you already have a high BEACON®, FICO® and EMPIRICA® score (usually in the mid-700s or higher), score factors may not be as helpful, since they represent very marginal areas where you could improve your score.

Please bear in mind that the ordering of the score factors is important. The first code indicates the area where you lost the most points, the second code is where you lost the second most points, and so on. In other words, concentrate on the first one or two score factors. The third and fourth factors (if present) are not as significant.

Ask your lender how you can improve your credit picture, if your credit application was turned down or you didn’t qualify for the interest rate you wanted. If you have been turned down for credit, the Equal Credit Opportunity Act (ECOA) gives you the right to obtain the reasons why within 30 days. You are also entitled to a free copy of your credit bureau report within 60 days, which you can request from the credit reporting agencies.

If the BEACON®, FICO® and EMPIRICA® score was a primary part of the lender’s decision not to extend credit to you, the lender can use score factors to explain why your score was not higher. Lenders often may not tell you your score because score factors are usually more useful in explaining how you can improve your credit quality over time. Lenders are not required to disclose your score, but you can ask.

If you live in California, a new state law effective July 1, 2001 requires credit reporting agencies such as Equifax to make credit scores available via U.S. Mail to Californians upon request. If you are a resident of California and you are interested in obtaining your score please contact Equifax at (800) 685-1111 or at www.econsumer.equifax.com

Your BEACON®, FICO® and EMPIRICA® score takes into account how much of your total credit line is being used on credit cards and other revolving credit accounts. Someone who is closer to “maxing out” on many credit cards or has large amounts of outstanding debt may have trouble making payments in the future, and this is reflected in the BEACON®, FICO® and EMPIRICA® score calculation.

The most effective ways to improve your BEACON®, FICO® and EMPIRICA® score in this area are:

  • Pay all bills on time
  • Pay down your debt rather than moving it around
  • Don’t close unused credit cards as a short-term strategy to raise your FICO score.
  • Don’t open new credit cards for the purpose of increasing your available credit.

 

The rules regarding how long the bureaus generally keep information on credit accounts are as follows:

Credit Accounts:

Accounts paid as agreed remain for up to 10 years.

Accounts not paid as agreed remain for 7 years.

 

Collection Accounts:

Remain for 7 years.

The time periods listed above are measured from the date in your credit file shown in the “date of last activity” field accompanying the particular credit or collection account.

Courthouse Records:

Remain for 7 years from the date filed except:

Bankruptcy — Chapters 7 and 11: remain 10 years from date filed.

Bankruptcy — Chapter 13 non-dismissed or non-discharged remains 10 years from the date filed.

Unpaid tax liens remain indefinitely.

Paid tax liens remain for up to 7 years from the date released.

New York State Residents Only: Satisfied judgments remain 5 years from the date filed; paid collections remain 5 years from the date of last activity.

California State Residents Only: All tax liens remain 7 years from the date filed.

 

Improving your score will take time and often there is no quick fix. BEACON®, FICO® and EMPIRICA® scores reflect credit payment patterns over time with more emphasis on recent information.

There is no mystery about how people can improve their BEACON®, FICO® and EMPIRICA® scores. BEACON®, FICO® and EMPIRICA® scores reflect the long-term patterns of credit use and repayment history over time. BEACON®, FICO® and EMPIRICA® scores automatically improve as your overall credit picture gets better. That means showing an historical pattern of paying your bills on time and using credit conservatively.

Focus on the four score factors provided with your BEACON®, FICO® and EMPIRICA® score. These represent the main areas where you are not receiving maximum points. Here are some general tips all consumers should follow:

 

DO:

  • Pay your bills on time. Delinquent payments and collections can have a major negative impact on your BEACON®, FICO® and EMPIRICA® score.
  • If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your BEACON®, FICO® and EMPIRICA® score.
  • If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your BEACON®, FICO® and EMPIRICA® score immediately, but if you can begin to manage your credit and pay on time, your score will improve.
  • Keep balances low on credit cards and other revolving credit. High outstanding debt can affect a BEACON®, FICO® and EMPIRICA® score.
  • Pay off debt rather than move it around. The most effective way to improve your BEACON®, FICO® and EMPIRICA® score in this area is by paying down your revolving credit.
  • Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your BEACON®, FICO® and EMPIRICA® score in the long term.
  • Note that it’s OK to request and check your own credit report. This won’t affect your BEACON®, FICO® and EMPIRICA® score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
  • Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix — it probably won’t raise your BEACON®, FICO® and EMPIRICA® score.
  • Have credit cards but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) may improve your BEACON®, FICO® and EMPIRICA® score. Someone with no credit cards, for example, tends to be higher-risk than someone who has managed credit cards responsibly.
  • Do your rate shopping for a loan within a focused period of time. BEACON®, FICO® and EMPIRICA® scores distinguish between a search for a mortgage or auto loan (where it is customary to shop for the best rate), and a search for many new credit lines.

DON’T:

  • Don’t close unused credit cards as a short-term strategy to raise your BEACON®, FICO® and EMPIRICA® score.
  • Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your BEACON®, FICO® and EMPIRICA® score.
  • If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a greater effect on your BEACON®, FICO® and EMPIRICA® score if you don’t have a lot of other credit information. Also, rapid account build-up can look risky if you are a new credit user. Do your rate shopping for a given loan within a focused period of time. BEACON®, FICO® and EMPIRICA® scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

BE AWARE THAT:

  • Paying off collection accounts, or other derogatory items will not remove them from your credit report. The fact that this event occurred is predictive, in addition to any dollar amount associated with the past due.
  • Closing an account will not remove it from your credit report and may not improve your score.
Credit Scores Make a Difference

Along with the credit report, lenders can also use a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.

About Credit scores

One credit bureau score is often called a “FICO score” because its credit scores are produced from software developed by Fair, Isaac and Company. Credit scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

These scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates. However you can now see what interest rates lenders typically offer consumers based on score ranges.

Your scores changes over time.

As your data changes at the credit reporting agency, so will any new score based on your credit report. So your scores from a month ago are probably not the same score a lender would get from the credit reporting agency today.

Credit Score Highs and Lows

 

Equifax          Beacon         300-850

 

Experian          FICO             340-820

 

Trans Union     Empirica       150-934

 

What is a good score?

Scores under 500 Bad score.
Scores 500-600 Poor score.  This usually is from slow pays on loans, charge offs, student loans and medical bills.  You will most likely be charged the highest interest rate allowed by law in your state, or turned down completely.  You’ll be considered “special finance.
Scores 600-650  Fair score. You will be able to obtain credit more easily than the weak credit category.
Scores 650-700  Good score.  As long as your debt to income ratio is low you will be approved, but will likely pay a higher interest rate on your loan.
Scores 700+ Great score. You are considered a “prime borrower” and will have no problem getting a great interest rate on your home loan, car loan, or credit card.

 

How much does a low score cost you?

Credit Cards

– Most credit cards are entirely out of reach to consumers with bad credit.  And the few credit cards that are available to them typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, and often require cash deposits.

Automobile Financing

– An auto loan can cost thousands more in interest if you are buying the automobile with bad credit.

Mortgage

– A typical home mortgage can cost hundreds of thousands more in interest if you are buying the home with bad credit.

Score Reason Codes

What are the most common score reason codes?

Here are the top 10 most frequently given score reason codes. Note that the specific wording given by your lender may be different:

  • Serious delinquency.
  • Serious delinquency, and public record or collection field.
  • Time since delinquency is too recent or unknown.
  • Level of delinquency on accounts is too high.
  • Number of accounts with delinquency is too high.
  • Amount owed too high on accounts.
  • Ratio of balances to credit limits on revolving accounts is too high
  • Length of time accounts has been established is too short.
  • Too many accounts with balances.

 

Reason Experian TU Equifax
Amount owed on accounts is too high 1 1 1
Delinquency on Accounts 2 2 2
Too few bank revolving accounts 3 N/A 3
Too many bank or Nat’l revolving accounts 4 N/A 4
Too many accounts with balances 5 5 5
Consumer finance accounts 6 6 6
Account payment history too new to rate 7 7 7
Too many recent inquiries last 12 months 8 8 8
Too many accounts opened in last 12 months 9 9 9
Proportion of balances to credit limit too high 10 10 10
Amount owed on revolving accounts is too high 11 11 11
Length of revolving credit history is too short 12 12 12
Time since delinquent is too recent or unknown 13 13 13
Length of credit history is too short 14 14 14
Lack of recent bank revolving information 15 15 15
Lack of recent revolving account information 16 16 16
No recent non-mortgage balance information 17 17 17
Number of accounts with delinquency 18 18 18
Too few accounts currently paid as agreed 19 27 19
Time since derogatory public record or collection 20 20 20
Amount past due on accounts 21 21 21
Serious delinquent, derogatory, public record or collection 22 22 22
Too many bank or Nat’l revolving accts w/ balances N/A N/A 23
No recent revolving balances 24 24 24
Proportion of loan balance to loan amt. too high 33 3 33
Lack of recent installment loan information 32 4 32
Date of last inquiry too recent N/A 19 N/A
Time since last account opening too short 30 30 30
Number of revolving accounts 26 N/A 26
Number of bank revolving or revolving accounts N/A 26 N/A
Number of established accounts 28 28 28
No recent bankcard balances N/A 29 N/A
Too few accounts with recent payment information 31 N/A 31
TAKE THE FIRST STEP TOWARD CORRECTING INACCURATE ITEMS ON YOUR CREDIT REPORTS- CONTACT US TODAY!!!
RMCN Credit Services
375 Adriatic Parkway #2205
McKinney, TX 75072
(972) 529-0900 Office (972) 562-0225 Fax

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