Credit scores are simply numbers generated by a Credit Reporting Company based on your personal data provided by a Credit Repository. Equifax, Transunion, and Experian ARE NOT credit reporting companies! They are the repositories, or bureaus.
They collect and provide your personal credit information to the reporting companies. In the mortgage industry for instance, a credit reporting company would be First American Credco. Another one is Landsafe. On the same day for the same person, Credco and Landsafe might pull two different sets of scores based on the particulars of their equations (though they should be very similar).
At any rate, the credit reporting company applies a proprietary equation to the data provided by the bureaus. The CREDIT SCORE, is a number that is generated by that equation. It is meant to represent your risk of default on a loan. The higher the score, the lower risk you are.
Though I do not know the exact way credit reporting companies calculate the score, here are the generally accepted proportions of what affect the equations results:
35% – Payment history
30% – Amounts Owed – the important thing here is “utilization of revolving credit.” The closer to maxed out you are, the more your credit will suffer. A huge point in the equation is 50%. You want to owe at most 50% of your max or less. Again, even less makes your score even higher, but being over 50% really hurts
15% – length of time on bureaus. That’s right, the older you are, the better your credit score (assuming everyone obtains credit around the same age). A better statement would be, “the older your accounts are, the better your credit.”
10% – New Credit – This covers new account OPENED and new account PURSUED. That means inquiries. If you are opening new accounts, or if you have tried to open excessive new accounts, it can affect your score by as much as 10%
10% Credit Depth – This means the reporting companies like to see you have several different types of credit. These include mortgage tradelines, auto tradelines, installment tradelines, and revolving tradelines. Mortgages and Autos are best, revolving doesn’t seem to help as much in my experience. Still, if you have no debt, your score may actually GO UP if you get a car loan!