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The concept of credit scores started back in 1956 with two men named Bill Fair and Earl Isaac. Fair, a mathematician, and Isaac, an engineer, founded the Fair Isaac Company;
otherwise, known to us today, as the FICO score.
This credit system has standardized the way the financial industry extends "credit".
As a result, there are 3 national credit programs at 3 different bureaus:
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· Fair, Isaac Model at Experian (formerly TRW)
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· BEACON at Equifax
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· EMPIRICA at Trans Union
Beacon and Empirica, both subscribe to the Fair Isaac's FICO model of scoring and then they integrate their own version of a person's FICO score.
On the other hand, when borrowers are looking for a mortgage loan, lenders pull what's called a "tri-merge".
A tri-merge merges and verifies all information detailed from all 3 unions into one report.
The main determinants of a credit grade are based on your credit and debt ratio.
Beacon scores range from 400 - 844; while, FICO scores range from 350
equivalent of a grade, A, B, C or D. y 'A" paper represents the highest quality loan,
and D paper is the highest risk loan for the investor.
For example, if your credit score is 680 or more, you fall in the 'A' paper category;
however, not all lenders rate credit the same way.
So the question is: how does your credit affect the interest rate a lender will charge you?
The answer depends on the level of the consistency of good payment in your credit history, along with your debt ratio.
If both are great, the loan is assigned "A" grade; and, qualifies for the best interest rate.
If even one of the factors is not up to par,
the quality of the loan is downgraded to 'A-" or 'B' paper. Consequently, the interest rate goes up as the perceived risk factor increases.
There is a higher risk for a lender making a B, C or D paper loan because there is a higher risk for a defaulted loan.
Therefore, the lender is compensated for the higher risk by charging the borrower a higher interest rate.
The concept of credit scores started back in 1956 with two men named Bill Fair and Earl Isaac.
Fair, a mathematician, and Isaac, an engineer, founded the Fair Isaac Company; otherwise, known to us today, as the FICO score.
This - 880. Conversely, lenders determine the investment quality of a loan,
When lenders review one's credit score, an underwriter reviews it. The underwriter and credit scores are assessed and rated by the following criteria:
Lifestyle History
How long you've lived at your residence
Do you own or rent (Owning property - earns extra credit)
How long you've been employed at your current job
How much money earned and how credit has been used
Payment history
Public record and collection items
Severity, recent and frequency of delinquencies noted in trade line section
Outstanding debt
Credit history
Number of balances recently reported
Average balance across all trade lines
Relationship between total balances and total credit limits on revolving trade lines
Pursuit of new credit
Number of inquiries and new account openings in the last year
Amount of time since most recent inquiry
Types of credit in use
Number of trade lines reported for each type
Bankcard
Department store cards
Personal finance company references
Travel and entertainment cards
Installment loans
Quick Improve Your Credit Scoring Tips
Obtain Your Credit FICO Score
Make any credit corrections with the proper documentation
Pay off small balances on high limit credit cards
Cancel certain credit cards and consolidate all the balances into a lower interest refinace loan with a cash out option.
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TRW
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TU
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EQUIFAX
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Amount owed on accounts is too high
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1
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1
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1
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Delinquency on accounts
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2
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2
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2
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Too few bank revolving accounts
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3
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N/A
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3
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Too many bank of national revolving accounts
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4
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N/A
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4
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Too many accounts with balances
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5
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5
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5
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Consumer finance accounts
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6
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6
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6
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Account payment history too new to rate
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7
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7
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7
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Too many recent inquiries last 12 months
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8
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8
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8
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Too many accounts opened in last 12 months
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9
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9
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9
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Proportion of balances to credit limits is too high
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10
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10
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10
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Amount owed on revolving accounts is too high
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11
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11
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11
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Length of revolving credit history is too short
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12
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12
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12
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Time since delinquent is too recent or unknown
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13
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13
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13
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Length of credit history is too short
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14
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14
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14
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Lack of recent bank revolving information
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15
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15
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15
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Lack of recent revolving account information
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16
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16
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16
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No recent non-mortgage balance information
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17
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17
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17
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Number of accounts with delinquency
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18
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18
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18
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Too few accounts currently paid as agreed
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19
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27
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19
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Time since derogatory public record or collection
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20
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20
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20
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Amount past due on accounts
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21
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21
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21
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Serious delinquency., derogatory public record or collection
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22
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22
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22
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Too many bank or national revolving accts. with balances
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N/A
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N/A
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23
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No recent revolving balances
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24
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24
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24
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Proportion of loan balances to loan amounts is too high
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33
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3
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33
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Lack of recent installment loan information
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32
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4
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32
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Date of last inquiry too recent
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N/A
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19
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N/A
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Time since last account opening too short
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30
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30
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30
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Number of revolving accounts
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26
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N/A
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26
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Number of bank revolving or revolving accounts
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N/A
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26
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N/A
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Number of established accounts
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28
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28
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28
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No recent bankcard balances
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N/A
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29
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N/A
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Too few accounts with recent payment information
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31
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N/A
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31
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cross-referencing the numbers shown on the credit report with the items in the table, we can see what caused John Doe's score to go down.
Be sure and ask your mortgage broker or lender what your score is and what "reasons" are listed.
With this information you can perform your own credit repair without paying some consultant to tell you the same thing!
Remember, if you feel there's an error in your credit report, contact the credit bureaus and dispute the information and inform your mortgage broker or lender as well.
It's also wise to obtain a copy of your credit report every year to make sure the information is correct and up to date.
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