Although most people have dozens of different credit scores, a lender considering your credit score is most often looking at a FICO score—a score calculated by the Fair Isaac Corporation using information from your credit history.
Unfortunately, studies have shown that as many as 25% of reports from the three major credit reporting agencies contain errors. That means debt that’s too old to be legally reported, accounts that aren’t yours, and debts that were paid off or discharged in bankruptcy may be dragging your credit score down. When that happens, your loan application could be denied or you could be offered a costlier loan with less favorable terms—all because your credit report isn’t accurate.
Factors Impacting Your Credit Score
Fair Isaac makes no secret of the factors that impact your credit score, nor the relative weight assigned to each of those factors. Although the company says that certain elements may be weighted differently depending on the length of your credit history and other factors, we know what matters when it comes to raising and maintaining your credit score.
Payment History (35%): Your payment history is the single largest factor in determining your FICO score. This piece of the analysis includes not only your payment history with past credit accounts, but also public record items such as bankruptcy, foreclosure, lawsuits, and wage garnishments. Not all late payments are treated equally—your FICO score also considers how late the payment was, how much was owed, how recent the issue was, and how many late payments are reflected in your credit history.
Amount of Debt (30%): Fair Isaac considers the total amount you owe, but the formula is much more complex. This element also takes into account how much of your available credit you’re using, how many accounts you have with balances, the type of account in question, and the remaining balance on installment loans. For example, a person who owes a total of $25,000 to five different maxed-out credit cards will be viewed differently than one who owes $20,000 on a car loan that was originally $37,000 and another $5,000 on a single credit card with a credit limit of $20,000.
Length of Credit History (15%): Those with long-established accounts get a boost in credit scoring. Both the age of your oldest account and the average account age factor in.
New Credit (10%): The number of new accounts you’ve opened, what type of accounts they are, how long it’s been since you opened a new account, and the number of recent credit requests all play a role in determining your credit score.
Credit Mix (10%): Fair Isaac considers the types of credit accounts being reported, not just how those accounts were handled. How important credit mix is in calculating your score may vary depending on the length of your credit history and number of items reported.
Note that payment history and amount of debt together make up 65% of the credit score calculation. Unfortunately, those two areas encompass a great many credit reporting errors and misrepresentations.
Some examples include:
- Duplicate entries
- Accounts that are not yours appearing on your report
- An account you are authorized to use appearing as your own account
- Incorrect payment history
- Inaccurate date of delinquency
- Inaccurate outstanding balances
- Incorrect credit limits
Monitor Your Credit Report to Protect Your Credit Score
In a perfect world, careful and responsible management of your credit accounts would result in a good credit score, and you wouldn’t have to scrutinize the records and fight for accuracy. Unfortunately, about one in four Americans don’t live in that perfect world. The only way to determine whether your credit score is being impacted by inaccuracies is to regularly review your credit report and then follow up aggressively on any false or erroneous entries.
The Fair Credit Reporting Act (FCRA) is Powerful Tool
If you’ve been fighting to clean up your credit report and losing the battle, we can help. For example, you may have disputed items on your credit report and:
- Your dispute was unsuccessful
- Your dispute was ignored
- Your dispute was successful, but the entry reappeared on your credit report later
The Fair Credit Reporting Act (FCRA) protects consumers from false and faulty credit reporting and imposes strict obligations on both credit reporting agencies and the creditors and debt collectors who furnish information to them.
Contact us today to learn more about how you can fight back.