Credit Basics

Don't know much about credit? Here's a quick run-down.

What's in a credit report?

 

A person's credit history is reported by the three major repositories:  Equifax, Trans Union, and Experian (TRW)

It contains: credit accounts, public records, inquiries

It does NOT contain: race, religion, personal assets, medical or criminal records

What's credit scoring?

 It's calculated by statistical models that assign points to factors indicative of repayment, like the probability of delinquency in 24 months. It's objective, not judgemental.

It requires one account over six months and one account updated in the past six months.


How long does the information stay? According to the Fair Credit Reporting Act:


  • Inquiries: 2 years, impact up to 1 year, 90 days from mortgage credit report
  • 7 years: collections, judgments, liens, charge-offs, foreclosures, payment history
  • 10 years: bankrupcies from date of filing
  • Open accounts in good standing: forever

How is credit score calculated?

•Payment History 35%

 –Credit accounts
–Public records
–Recency
–Frequency
–Severity 

•Credit History 15%

 –Time since opened
–Specific accounts
–Average age
–Avoid credit surfing 

•Pattern of credit use (New accounts, Inquiries) 15%

 –How many new vs. total
–Mortgage & auto excepted 

•Types of accounts 10%

 –Finance company score lower than banks and retailers