Prospective clients often ask how their actions will impact their credit score.
Much of what makes up the credit score is deliberately kept secret by the privately held corporation that developed credit scores.
The three credit bureaus (Equifax, Experian, TransUnion) and individual creditors may also have different scores.
Mainly, because they use a different credit score model or because not all creditors report to the same bureaus.
But we know generally that the FICO score created by Fair Isaac is made up of the following factors:
(1) 35% of the score is based on your payment history
(2) 30% of the score is based on the ratio of credit used to the credit available
(3) 15% of the score is based on the length of your credit history including how long accounts have been opened
(4) 10% of the score is based on new credit
(5) 10% of the score is based on the mix of accounts
Thankfully there are efforts underway to restrict how credit scores can be used.
Evidence suggests that credit score models discriminate against minorities and the poor.
Several states have also passed legislation prohibiting credit scores from being used in employment, insurance and other situations.
And some people are rejecting America’s credit score obsession altogether by eliminating all or most of their debt.