Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences such as your; bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. You can obtain your credit report and score from a number of sources, such as:         www.equifax.com      www.experian.com      www.transunion.com

A common misconception is that you will lose points if you check your credit. This is not true. Your credit score decreases every time you request credit. When you retrieve a copy of your credit report or score you do not request credit therefore your credit score is not affected.

See "Credit Improvement" for information on how to improve your credit.

Interpreting Your Score

This is a general guide to what is called "A-B-C-D" credit. These grades are typical of the requirements used by many lenders, but are not absolute grades. Individual lenders typically have similar but somewhat different specifications. Keep in mind that late payments, called "lates", are generally tracked within the previous 12-month period. Please keep in mind these are "general" guidelines. Some lenders assign different grades or use different grade definitions based upon their own method of evaluation.

A Credit
Considered the best credit rating. Credit scores are generally 640 and up with no lates on mortgage and no more than one 30-days-late on revolving or installment credit. No bankruptcy within past 2-10 years. Maximum debt ratio is 36-40% while maximum loan-to-value ratio is 95-100%. This type of credit will demand the best interest rate available!

B+ to B-
General good credit with credit scores from 590 - 629. Two or three 30-days-late on mortgage and two to four 30-days-late on revolving or installment credit. Cannot have any 60 day lates. Must be 2-4 years since bankruptcy discharge. Maximum debt ratio averages 45-50% while maximum loan-to-value ratio is 90-95%. This type of credit will obtain rates 1-2% higher than current market rate.

C+ to C-
Fair credit with credit scores from 570-580. Three to four 30-days-late on mortgage are allowed. Installment or revolving credit can have four to six 30-days-late or two to four 60-days-late. Must have 1-2 years since bankruptcy discharge. Maximum debt ratio runs around 55% with maximum loan-to-value ratio averaging 80-90%. This type of credit will generate rates 3-4% higher than current market.

D+ to D-
Overall poor credit history with FICO scores from 570 and lower. Two to six 30-days-late on mortgage or one to two 60-days-late, with isolated 90 days late. Revolving and installment lates show poor payment record with pattern of late payments. Possible current bankruptcy or foreclosure allowed with all unpaid judgments to be paid with loan proceeds. Must have stable employment. Maximum debt ratio averages 60% with max loan-to-value of 70-80%. This type of credit will result in high interest rates (12-14%), but borrower can always refinance after one year of "on-time" mortgage payments to bring rate down.

When a lender receives your credit score, up to four "score reason codes" are also delivered. These explain the top reasons why your score was not higher. If the lender rejects your request for credit, and your FICO score was part of the reason, these score reasons can help the lender tell you why your score wasn't higher. These score reasons are more useful than the score itself in helping you determine whether your credit report might contain errors, and how you might improve your score over time. However, if you already have a high score (for example, in the mid-700s or higher) some of the reasons may not be very helpful, as they may be marginal factors related to such things as; length of credit history, new credit and types of credit in use.