Credit scores can make or break a loan decision

March 05, 2004|by LYNN F. LITTLE

Your credit score has been affecting your life for years. When you apply for credit or a loan, lenders from credit card companies, home equity, auto loan lenders and finance companies use the score. It is produced with a computer model created by Fair, Isaac & Co. (FICO).

A credit score is an outline of your credit history. A low score can mean you don't get a credit card or a loan. Or it can mean you will pay a higher interest rate, if you get a credit card or a loan. Some lenders use your credit score and other information to set the "price" for your loan.

Five main areas comprise a credit score:

  • Payment history (35 percent of score): Negative marks occur when you have paid bills late, had an account sent to collection, or declared bankruptcy. Not paying your current bills will hurt your score more than a bankruptcy five years ago.

  • Outstanding debt (30 percent): If you have maxed out your credit limit on a card, this is a negative mark. A low balance on two cards is better than a high balance on one.

  • Length of your credit history (15 percent): The longer your accounts have been open the better.

  • Recent inquiries on your report (10 percent): If you recently have applied for many new accounts, this is a negative mark. Promotional inquiries don't count.

  • Types of credit in use (10 percent): Loans from finance companies usually lower your credit score. FICO uses this factor when there isn't a lot of other information upon which to base a score.

All of this information is a guide to what credit scoring companies see as key. Some companies may consider extra factors. The law states that a business cannot base the credit score on age, race, gender, education, national origin, marital status or receipt of public assistance.


Credit scores range from 300 to 900 with the average around 750. As your score increases, your risk of default decreases. There is a link between low scores and high default rates. Like your credit history, your score varies from one credit bureau to another. Lenders look at three credit bureaus' files and usually take the middle score.

Credit scorers are not required by law to reveal credit scores to consumers. Since 2001, however, consumers can secure their credit score for a fee ($12.95). To get your credit score, visit, or on the Web.

Lynn F. Little is a family and consumer sciences educator with Maryland Cooperative Extension in Washington County.

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