Credit Rating - interesting information

[spidey07]

Was talking to my bank today and they told me that "the way credit ratings (FICO scores) are figured today are quite different than the old rules"

Taken from internal memo
What makes up the score?
35% - based on payment history
30% - based on capacity (the difference between your line of credit and the amout you owe on that particular line)
15% - length of credit history
10% - accumulation of debt in the last 12-18 months
10% - mix of credit (installment vs revolving)

What actions hurt the score?
Missing payments - it will take 24 months to restore credit with one late payment
credit cards at capacity
closing credit cards out - this lowers available capacity
shopping for credit excessively
opening up numerous trades in a short time period
having more revolving loans in relations to installment loans
borrowing from finance companies

What doesn't affect score?
Debt ratio
Income
Length of residence
Length of employment

Very interesting indeed. Can anybody that is in the know (ie does credit reviews for a living) confirm or refute?

 

[pyonir]

What doesn't affect score: Income.

That one doesn't seem too accurate. I had to finance part of the total when i had my transmission rebuilt and one of the lending companies sent me a denial letter saying that my income wasn't high enough for amount of money requested.

 

[spidey07]

Originally posted by: pyonir
What doesn't affect score: Income.

That one doesn't seem too accurate. I had to finance part of the total when i had my transmission rebuilt and one of the lending companies sent me a denial letter saying that my income wasn't high enough for amount of money requested.

This info is dealing with FICO credit scores only.

 

[pyonir]

oh ok.

 

[CPA]

I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

 

[DurocShark]

Originally posted by: spidey07

Originally posted by: pyonir
What doesn't affect score: Income.

That one doesn't seem too accurate. I had to finance part of the total when i had my transmission rebuilt and one of the lending companies sent me a denial letter saying that my income wasn't high enough for amount of money requested.

This info is dealing with FICO credit scores only.

That sounds about right. Length of residence, employment, income, etc are irrelavent to the FICO score. But a lender most certainly will look at those issues to assign a Risk Factor to you.

For example: Here at this mortgage company I'm at, you could have an 850 FICO from your report (an 8A risk). However, if your debt ratio is over 50%, you're automatically a B risk. That's the difference between a 5% rate and a 10% rate. Ouch.

 

[spidey07]

Originally posted by: CPA
I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

I highlighted it because so often it is recommended to close out accounts. The bank manager kept shaking his head, "no, no, no. That used to be true many years ago, but not anymore. Keep all availible credit open, even if you don't use it"

 

[CPA]

Originally posted by: spidey07

Originally posted by: CPA
I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

I highlighted it because so often it is recommended to close out accounts. The bank manager kept shaking his head, "no, no, no. That used to be true many years ago, but not anymore. Keep all availible credit open, even if you don't use it"

exactly.

 

[pyonir]

Hmmmm wish i would have known that about three months ago. i was still under the impression they hurt your score. I closed out about 5 accounts that i had zero balance. :|

 

[Mr N8]

Originally posted by: CPA

Originally posted by: spidey07

Originally posted by: CPA
I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

I highlighted it because so often it is recommended to close out accounts. The bank manager kept shaking his head, "no, no, no. That used to be true many years ago, but not anymore. Keep all availible credit open, even if you don't use it"

exactly.

Don't you have to keep it semi-active? Wouldn't they close the account for you if you didn't use it?

 

[spidey07]

Originally posted by: MogulMonster

Originally posted by: CPA

Originally posted by: spidey07

Originally posted by: CPA
I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

I highlighted it because so often it is recommended to close out accounts. The bank manager kept shaking his head, "no, no, no. That used to be true many years ago, but not anymore. Keep all availible credit open, even if you don't use it"

exactly.

Don't you have to keep it semi-active? Wouldn't they close the account for you if you didn't use it?

Depends. I've got a 10K line of credit I haven't touched for years, but it is still open.

 

[CPA]

Originally posted by: MogulMonster

Originally posted by: CPA

Originally posted by: spidey07

Originally posted by: CPA
I like that you highlighted lowering available capacity. That one is rather new. And it is a reason why I rarely close anything out. Which is also why I have 20+ credit card, two cars a house and my FICO scores are still in the 730 range.

I highlighted it because so often it is recommended to close out accounts. The bank manager kept shaking his head, "no, no, no. That used to be true many years ago, but not anymore. Keep all availible credit open, even if you don't use it"

exactly.

Don't you have to keep it semi-active? Wouldn't they close the account for you if you didn't use it?

Depends on the company. The point is don't actively close them enmasse month's before trying to get a mortgage or other large loan.

 

[amcdonald]

I just cancelled 2 useless credit cards yesterday... wonderful news.

 

[Cyberian]

Originally posted by: pyonir
Hmmmm wish i would have known that about three months ago. i was still under the impression they hurt your score. I closed out about 5 accounts that i had zero balance. :|

Me too.
I kept opening store CCs when they offered 25% off your first purchase or some such deal. Then I'd pay off the balance in full and cancel the cards.
Well, my mortgage was paid off almost 20 years ago, so I guess I don't really have to worry too much.

 

[wyvrn]

Income and debt ratio are most certainly considered when applying for a mortgage. If you ratios are too high, you will get declined. If your income as a percentage of the purchase price is too low, you will get declined. Also, if you have investment property, only 75% (depending on lender) of income from that property is considered as income. So, if you owed the mortgage company 1000/month on that investment property, and you received exactly 1000/month in rent, then you are $250 a month in the hole, which then gets itemized as an expense and your available monthly income for buying a new house is reduced. FICO is important, but it is not the only thing lenders look at.

 

[Vic]

I believe I posted to this effect in a thread yesterday.

edit: although not as informative -- dullard was trying to say that having more than 2 credit cards hurt your credit

 

[spidey07]

I just thought it was rather insteresting.

Especially that the manger kept saying "we don't take those factors into consideration anymore, this is what's important to us"

 

[wyvrn]

Sorry wasn't trying to crap on your thread with my post. That's actually good info since I didn't know that before

Originally posted by: spidey07
I just thought it was rather insteresting.

Especially that the manger kept saying "we don't take those factors into consideration anymore, this is what's important to us"