EPIC

Ten percent of your score falls under a category that Fair Isaac categorizes as “new credit.” This category reflects factors such as the number of new credit accounts on your credit report. The more new accounts you have open, the more poorly this reflects on your score. In addition, the number credit checks that are run on you in the past year can actually reduce your score. This assumption is that, if you are searching for more credit, then you are a greater credit risk.

Fifteen percent of your credit score measures the length of your credit history under Fair Issac’s system. Finally, approximately 10 percent of your credit score evaluates the type of credit you have and whether it is a “healthy mix.”

These factors are just a few among many, and your credit score is determined by a complex formula that takes into account over 100 different factors.

While different lenders may evaluate scores differently, generally, a score above 680 is considered to be prime. Individuals with scores between 680-575 are likely to receive subprime loans, and individuals with scores below 540 will generally be denied credit altogether. If the individual is listed as having filed for bankruptcy, it results in a 160-220 point deduction on their credit score. A bankruptcy will remain on a credit score for 7-10 years. If a delinquent account is added to the individuals credit file, 70-120 points are subtracted.

Problems Associated with Credit Scoring

Subprime Lending

Individuals with higher credit scores are offered different services than those with lower scores. Individuals with lower credit scores are targeted with subprime loans with higher interest rates. To illustrate the way in which credit scores effect interest rates, the Center for Community Change explains that individuals in the top credit score tier, +720, will generally pay 5.546 percent for a $100,000 mortgage carrying a monthly payment of $572. If extended credit at all, an individual with a credit score under 559 will pay 7.945 percent on the same mortgage, carrying a monthly payment of $730.

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