What is a credit report score?

A credit score is a number used by lenders as an indicator of how likely you are to repay your loans. Your credit score is generated by a mathematical formula utilizing the data from your credit report. Lenders have been using credit scores as part of the lending decision for more than 30 years.

There are many different computer models that can calculate a credit score. In general, however, the computer model assigns points to information in a credit report. For example, making payments on time every month is positive for the score. Charging the maximum amount available on a credit card is negative. The computer adds the positive and negative points, and the resulting number is a credit score. Credit scores have proven over time to be a reliable indicator of whether or not a consumer would repay a loan.

Scores also fluctuate depending on credit activity. Since credit bureaus only calculate your score at the lender's request, it will be based on the information in your file at that particular credit bureau, at that particular time only.

What factors are considered in your score?

The following are just a few exmaples:

• Current balances on accounts
• Length of time accounts established
• Bank revolving accounts
• Reported delinquencies
• Number of accounts with balances
• Number of finance company accounts
• Recent payment history
• Proportion of balance to your credit limit
• Number of recent inquiries
• No recent (non-mortgage) account balance information
• Legal item filed or collection item reported
• Accounts not paid as agreed and/or legal item filed
• Employment and residency

Everything in credit scoring is relative -- one negative item can have a small or large impact on your score depending on your credit history. If you have a long and seasoned history of credit and many established accounts,one late payment would have a small impact on your score. However, if you have a short credit history, one late payment would impact your credit history much more.

Your score should be affected less if you have late payments on minor credit lines versus major ones. For example, if you are delinquent on a gas or department store account, and not on a mortgage or auto loan, your score should not be affected as much as it would if you are delinquent on an auto loan. Paying on a credit card should affect your score more than payments on department store cards.

A typical scoring model may also consider your job or profession for stability, and how long you've lived at your address.

How can I improve my credit score?

To improve your credit score, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

For more information, see "How To Improve Your Credit Score" page.

FICO: the most commonly used credit report score

FICO scores are by far the most commonly used although are other credit scores. A FICO score is the method that many lenders use to determine whether to accept or reject your mortgage application as well as setting fees and rates.

For more information about FICO score, see the FICO Score page.