Your credit score, or FICO score, is a number that reflects your financial responsibility and helps lenders decide if you're a credit risk or not. Your score is based on - but not part of - your credit report. It's generated at the time of request, then included with the report.
The five factors that determine your Credit Score are:
- Payment History - (approximately 35% of your score) The factor that has the biggest impact on your score is whether you've paid past credit accounts on time."
- Amounts Owed - (approximately 30%) Having credit accounts and owing money doesn't mean you're a high-risk borrower. But owing a lot of money on numerous accounts can suggest that you are financially overextended and more likely to make some payments late or not at all. Part of the science of scoring is determining how much debt is too much for a given credit profile.
Interpreting your Credit Score
Your credit score lists up to four reasons why your score is not currently higher. These reasons can be very useful in helping you determine how you might improve your score over time, and whether your credit report might contain errors.
Here are the nine most common explanations:
- 1. Serious delinquency - You have one or more accounts with late payments
- 2. Serious delinquency, and public record of collection filed - You have one or more accounts that have gone to collections
- 3. Time since delinquency is too recent or unknown - You have one or more accounts that are recently past due
- 4. Level of delinquency on accounts - Your accounts are 60 to 90 days or more past due
- 5. Number of accounts with delinquency - You have numerous past due accounts
- 6. Amount owed on accounts - You have too much debt
- 7. Proportion of balances to credit limits on revolving accounts is too high - the balance on your credit cards is too high
- 8. Length of time accounts have been established - your credit history is not long enough to show responsible management
- 9. Too many accounts with balances - concern over your debt load
proportion of balances to credit limits
Credit Score Models
Credit score models; their role in the loan process.
You step into your bank's loan office with the intent applying for a loan.
One of the ways they make this judgment is by your credit score, the measurement used to determine how much of a credit risk you are.
The biggest factor that the risk score determines is how likely you are to make a serious default in the next two years. Serious being a 90 day late payment.
What is of concern to the borrower is how that score is arrived at. Most consumers think they have one credit score when in fact they have many.
These credit risk scores are determined by the information that is kept at the credit reporting agency that is involved in providing information to the lender you are working with and by the credit score model that is used by that lender.
the bank then may use
- that number solely,
- or make a average with scores given from all three credit reporting agencies,
- or use one and add their own criteria or scoring system to arrive at the score they will use.
What you, as the borrower, are most concerned with will be what credit score models that lender is using.
Varying types of credit score models will use different criteria. More weight will be on some negative items that other credit score models may not be as concerned with.
Your bank additionally may deem certain aspects as more important than other areas that another lender will not consider as important.
You are looking for a large loan and your history isn't that varied (a mix of types of loans) and that may be something your lender is interested in seeing in a potential borrower.
Most lending institutions will use some sort of FICO score model, BUT that may not always be the case. Before you get too far into the process you may want to find out what credit score model they use and see how much information about that model you can get before it actually becomes an inquiry.
Note about inquiries:
Inquiries are just as they sound, inquiries into your credit. There are two types of inquiries.
These are the ones you initiate yourself in the applying for credit process.
They usually result in shaving some points off your credit score. So doing a bit of homework on your part before involving yourself in the actual loan application process would be a good idea.
Additionally you want to keep those inquiries to a minimum as hard inquiries stay on the credit report for up to 2 years.
Unless it is a large purchase, such as a new car, a flutter of new inquiries is generally looked at as someone in a desperate search for additional money. Not an attractive look to a lender.
The second type of inquiry is called a soft inquiry.
These are made by credit card companies and others looking to extend offers to you. Also those inquiries you make yourself (checking on your credit report) are also considered soft inquiries and these do not have an impact on your score.
Once you know what credit score model your institution uses you may want to additionally know (if they will discuss this with you) if you will be part of a score card or I should say WHAT score card you may be on.
Most credit score models use several scorecards. This is looked at as making the process more predictable. To the one lending this is the most advantageous to them.
In business there is always going to be losses somewhere and having a system in place to predict those losses is valuable.
For the borrower what this means you will be grouped with those of a similar history and if you look better than others in that category your credit score could be higher.
Overall the more of a loss you appear to possibly be, either the loan will be denied or the rate will be high to cover the possible losses incurred with a risky transaction!
If you are part of a risky category and you rate higher than others in that category most likely you will not be denied the loan but you will  likely receive a higher percentage rate.
On the other hand.
If your score and information used to determine that score match the favorable criteria level they have in place, your interest rate will be low.
Many times, as previously discussed, large banks will have their own credit scoring models with their own formula in place and use a third party scoring model together with it. Again, usually a FICO product.
It is noted that these credit scoring models must not use biased information as part of the report such as:
sex, race, religion or marital status.
FICO products being the largest based (most products) and considered the standard and most predictive, many other credit scoring models try to copy these.
The ones that mimic the FICO product (many call these FAKO scores) may still be a good judge of what your credit worthiness may be but they also are not usually what your lender is using.
Some of these mimickers are Experian's plus score and scorex. While these are good way to get a general idea of where you stand if you've never looked at your score, if you are in the market for a large loan or mortgage you will want to get the "real thing" that your lender will be using.
Knowing what the credit score model and score card you are on OR if you are on one of the proprietary credit score models of your lenders' is important to know before the loan process.
In the case of a proprietary situation the loan officer you are dealing with will hopefully be able to explain that and what is important to that situation.
Use that information to improve your score, or decide if indeed that is the institution you wish to work with.
If upon receiving your credit score and a negative action does occur (a loan denial) the law requires the lender to state what reasons lead to the denial.
There is a reason code that is standardized across all credit score models.
Here is a partial listing of reason codes that may be used when you are denied credit or not given quite the loan you were looking for.
- 01. Amount owed on accounts is too high
high on revolving accounts
11. Amount owed on revolving account is too high
13. Time since delinquency is too recent or unknown
21. Amount past due on accounts
or collection filed
23. Number of bank or national revolving accounts
record or collection filed
39. Serious delinquency
Using these reason codes you can correct the problems and hopefully wait for your credit score to go up before applying again.
- 1) number of credit cards
3) How many loans or credit cards
Though knowing what credit score models your lender may be using certainly is helpful in fine tuning any repair work on your credit, the bottom line is the credit report is the underlying basis for those credit score models that lead to your credit score. The bulk of work to improve your credit score exists there.
Credit | Columbia Law School
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Since eligibility for all credit-based educational loan programs (Federal Direct Graduate PLUS, private educational loans) is determined on the basis of the borrower’s credit history, we strongly advise you to obtain a copy of your credit report, which is a snapshot of your credit history. Several credit bureaus and their telephone numbers are listed below:
Columbia Law School graduates typically have an excellent educational loan repayment record. This makes our students attractive customers for a large number of lenders. Nevertheless, lenders still look to the individual borrower’s demonstrated financial responsibility when deciding on a credit application. Therefore, we recommend that borrowers familiarize themselves with the various components that enter into a lender’s decision to extend credit.
In deciding on a loan application, lenders will examine your credit history in an effort to determine the likelihood that you will repay your loans in the future. The method they use to decide your credit-worthiness is called credit scoring. Some factors used to calculate your credit score include promptness in paying bills, number of credit inquiries and/or credit cards, total credit limit, and the amount owed on your accounts, especially your revolving accounts. While some student borrowers may be concerned about the effect of high educational debt or multiple student loans on their credit score, these factors are not as important as how well you managed your credit in the past. Finally, a credit check is required to be eligible for the Federal Direct Graduate PLUS loan, but the credit criteria is less stringent than with most private student loans.
If you have had problems with any creditors over late payments, disputed debts, or defaults of any kind, you should make every effort to resolve them well before the start of your studies. Students with an adverse credit history may not be able to secure the loans necessary to finance their education. If this is the case, you will need to have others borrow on your behalf, or find other means to finance your education. Please keep in mind that Law School funds will not be available to replace unavailable credit-based loans.