decide whether they want to extend credit to borrowers who present that amount of risk.”
Credit scores look at three factors, according to Taylor-Shoff: severity, recency and frequency. “In terms of severity,” she says, “a report of a 30-day late payment is not as serious as a 90-day late payment. Obviously, one late payment is not as risky as several late payments.” As far as recency is concerned, a credit lapse four or five years ago might not concern a lender who sees that you’ve been paying your bills since then.
Credit availability also may affect your score. If you have no credit cards, for example, you can’t show you have been approved for credit and made payments regularly. On the other hand, having many cards — and a huge overall credit line or high outstanding balances — can be a risk indicator. Fair, Isaac data indicate that having two cards probably is the lowest risk level; once you have seven cards or more, credit scores may decline.
On the other hand, there are many factors a credit score doesn’t look at, because some factors have not proven to be reliable predictors of debt repayment, says Tom Ducey, vice president of credit policy for Fannie Mae, a federally sponsored mortgage purchaser in Washington, D.C. “Credit scores don’t consider your income, the neighborhood where you live or where you work,” he says. “They don’t consider how many years you’ve been at your current job. Therefore, credit scores may be helpful to young people who are just starting their careers, provided they handle their debt prudently. On the other hand, if you misuse the first credit card you get when you’re still in college or just out of school, the negative reports will hurt your credit score for years.”
WHAT’S YOUR NUMBER?
Unfortunately, you may not realize how much your transgressions have damaged your score. When you request a copy of your credit report, you won’t see a score on it. Can you get a copy of your score? Possibly, if you’re friendly with a bank loan officer or an auto dealer’s credit manager. However, the score itself won’t be particularly meaningful unless you know the scale and the cut-off points. (The “reason code” is probably more meaningful to you than the actual number you receive. Ask your lender if he or she can reveal the reasons behind your score.)
Although many lenders now develop their own credit scores, the Fair, Isaac score, known as FICO, is widely used, especially for home mortgages. Fannie Mae and Freddie Mac, another quasi-federal agency, “suggest” strongly that lenders use FICO scores, so these scores are widely used for mortgages. In some cases you can provide basic information to a loan officer who will enter the data into a computer and come up with your score within a minute or two.
FICO scores range from 300 to 900 (other scoring systems may use different ranges). But a 900 FICO score is virtually impossible to get. “There are very few scores in the 800s,” says