What is in a Credit Score?

Your credit score is based on a secret mathematical formula owned by a company called the Fair Isaac Company [FICO]. Your score is like a snap shot of where you are today. The score varies from time to time and for various reasons – usually the maximum score is 850 and the minimum score of 300. As you pay on time, the positive information improves your score. The opposite is also true. If you pay late, then your score will immediately begin to drop.

Each CRA usually has different information about you and they don’t share said information. This explains why you receive different credit scores from each credit reporting agency. Additionally, there are different types of credit score cards. As an analogy, it is like saying the company “FORD” has different types of vehicles – some are hot rods like a Mustang, others are trucks, and others are cars. Each has a different purpose and a different price.

The same is true for the Credit Reporting Agencies. When you apply for a home loan, the type of credit score card is much more detailed than when you apply for a regular credit card at a retail store. The reason is simple. The bank is lending you much more money that a retail store so they want as much information as they can get before deciding whether you, as a consumer, are a good candidate. Meaning you are likely of paying the bill on time, returning the money, and, of course, not defaulting on the loan.



For you to build or keep a healthy credit score, there are three main areas of your credit you should focus on. They are your credit history, your credit balances, and public records.

First is your credit history. In order to have a score, you must actively be using your credit and paying it on time every month. In using your credit you must use it in a manner a “reasonable” person would. That means within limits. Abusing your credit will cause your score to drop. A late payment on a credit card or mortgage will seriously impact your score. The good news is as time passes, the late payment’s impact on your score lessens and even becomes obsolete.

Second is your overall credit balances. If your credit balances exceed 30% of your entire credit availability, your score will also begin to drop. Therefore if you are at 90% limit all your credit cards, you will have a lower score because you have over extended yourself. The good news is that once you bring down your balances, your score is likely to increase. Our suggestion is not to use more than 30% of the credit limit afforded to you. Therefore, if the credit limit is $1,000 do NOT pass $300. Some believe the percentage is higher, but our experience states otherwise.

Third is the public records. Having collection accounts, judgments, bankruptcies, and other public records is also a serious problem. Many times, collection agencies report incorrect information on your credit report in an attempt to collect on the debt. Some agencies have also been known to duplicate accounts or state that the date of last activity was “yesterday” when, in truth, it is an old debt. The reason is that this is their incentive for you to pay a delinquent bill — because a “fresh” delinquency hurts your credit more than an old delinquency. If you are applying for a home loan, many lenders force consumers to pay current past due balances.

The problem is that, by taking the above actions, collection agencies have potentially engaged in illegal conduct. They may be violating your rights under the FDCPA and the FCRA. If you are having or experiencing this situation, please contact us.