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What’s The Score?

Credit Scores And How They Are Determined

January 12, 2001


A consumer looking to get a loan will usually deal with a financial institution such as a bank, finance company or credit union. In order to determine whether or not to approve each loan request, these institutions have developed loan approval guidelines. These guidelines generally consider an applicant’s assets, income, monthly payments and credit history. While the first 3 categories are important, the fourth, credit history, is given the most weight.

The applicant’s credit history is obtained from one or more of three credit reporting repositories, Experian, Trans Union and Equifax. Each repository is constantly provided account and payment information from lending institutions. For instance, if a consumer purchases a new automobile with a loan from the Bank of United States, the bank will report the new loan details to 1 or more of the repositories. In addition, each month the bank will report whether the payment was made on time.

While credit reports from each repository are similar, they differ in which lenders provide information to them. Lenders in one region of the country may be more likely to provide account information to one repository than another.

Up until recently, most lenders developed very specific credit guidelines. For example, some lenders would not approve a loan application if the applicant had been more than 30 days past due during the prior two years on any account. Others may have denied any applicants that had ever filed for bankruptcy protection.

However, during recent years specific guidelines for detailed payment histories have been replaced with credit score guidelines. For instance, while a loan applicant might have previously been denied approval due to a recent 60 day late payment, that same applicant might be approved today as long as the credit score was at least 700.

Fannie Mae, one of the largest lenders in the world, requires that loan applicants have a credit score of at least 620 to obtain a mortgage.

Credit scores were developed by Fair Isaac & Company. Because there are 3 repositories, Fair Isaac had to develop three credit scoring models. The FICO score was developed for Experian, The Empirica score was developed for Transunion and the Beacon score for Equifax.

The scores are determined by a number of factors. More than 1/3 of the score is based on payment history. This takes into account payment histories on credit cards & loans, and public record & collection items (bankruptcies, judgments, suits, liens, wage attachments). Recent late payments will have a worse effect on the credit score than late payments many years ago.

Almost a third of the score is based on how much is owed. This takes into account the credit limit on credit cards versus the unpaid balances, the type of accounts (i.e. credit card vs car loan) and how many accounts have balances.

Other factors used in credit scoring include the number of accounts opened recently and the length of time that the consumer has established credit.

A more detailed explanation of the Fair Isaac’s credit scoring factors can be found at their website,

As of now, the credit repositories do not provide credit scores directly to consumers. While some lenders may provide a copy of the credit report, which often contains the credit score(s) on it, to their loan applicants, most lenders are prohibited from doing so in their agreements with the credit repositories.

California has recently enacted legislation enabling consumers to access their credit scores. Recent efforts by national consumer groups and politicians may propel federal legislation enabling consumers in every state to access their credit scores. After recent scrutiny, Fair Isaac recently reversed its position about providing the scores directly to consumers and is now in favor of it. The 3 repositories, however, have yet to take that position.

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