Credit Score Modeling - How it works?

Credit Score Modeling
By John Nunez

- The credit score is a measure of various factors involving the consumer’s use of his/her credit.

This score goes from 350 to 850.

It is generated and maintained by three repositories.
These are known also as Credit Bureaus and they are Experian, Empirica and Trans Union. Their job is to both process and serve as repositories of consumer credit information supplied by creditors like VISA, Master Card, American Express, major store credit cards, mortgage companies, etc.

Their processing side involves "running" the information received from creditors thru a secret
algorithm that produces the credit score.

The five mayor areas in the composition of the credit score are:

1. Payment History = 35%
a. Late Mortgage or rent payments are considered worst cases of bad payment.

2. Outstanding Debts = 30%
In this respect you should:
a. Never close an old trade line (you'll wipe out your credit history!)
b. Pay to ZERO your accounts. These are your best option, but by the same token, never use your credit card as a 30-day pay window.
c. Never go over your assigned limit, you'll be double penalized.
d. Best call == keep your balances between 40%-50% of the available credit limit.
e. Look to increase credit limit (of course, when your account is ZERO or around that area, never when it is maximized!)
f. DO NOT max out your credit line.
g. Reject any mail request to move balances, in order
to keep yours down. Beware of these 'teaser' rates.

3. Length of Credit History = 15%
a. A solid credit history starts in 2 years.

4. Good Credit Source Mix = 10%
Ideally one or more mortgages and 3 revolving lines of credit (like credit cards).

5. Amount of Hard Enquiries = 10%
Repeated credit pulls by creditors (those pesky credit card mail offers that you accepted!).
When shopping for a new mortgage each pull can cost you between 10 and 50 points.

IN SUMMARY:
I. Go to http://www.myfico.com and pull your own credit, before applying for a loan. The request must be, what it is known as tri-merge (scores from the three Credit Bureaus) or a '3-report pull' and it will cost you NO POINTS, but you yourself MUST DO IT, using a credit card with your name to pay for on line.
II. If you are shopping for a mortgage do it in a 14-day limit. Multiple credit pulls done within 14 days will be consider as one.
III. Check your credit at least once a year.
IV. Put your mortgage on auto-payment and make sure the mortgage holder does not charge you for setting this system up.
V. Make pass due accounts current.
VI. Keep your credit account balances between 40% and 50% or below the total available limit.
VII. Use your credit cards at least once a month.
Unused credit cards (idle) will generate a negative score in your credit.
VIII. Never cancel your old revolving credit cards.
IX. Avoid going over the credit limit.
X. Never accept pre-approved credit mail offers.
XI. Do NOT consolidate your accounts.
XII. Never pay your collections, judgments, or other old debts after signing your mortgage loan
application -- do it at least 30 days before that. Be proactive not REACTIVE!