How Credit Scoring Works

There are three main credit reporting agencies that collect information from lenders. The credit reports issued by these agencies in turn provide lenders who are considering making new loans with information on consumers’ bill-paying track records, including summaries of their loan and credit line usage. . If there have been any issues such as defaults or late payments, these will be reflected by the report.

By taking these patterns of behavior and other financial factors into account, credit agencies calculate a score for each borrower. So, your credit score represents an estimate of how responsibly you use credit and how dependably you repay your debts.

This reliance on the reporting agencies by lenders makes it crucial for you to check your credit report for accuracy. It also pays to be aware of ways to raise your credit score, since bad credit costs you money and won’t repair itself—even if you’re not at fault.

Factors That May Influence A Borrower's Credit Score:

Poor payment history — This is the primary reason for having a bad or declining credit score. Poor payment history includes: late bill payments, bankruptcies, home loan foreclosures, repossessed cars, boats or other items, as well as collection agencies seeking payment of bills.

Reaching your credit limit — If a borrower has basically used all the credit available to them, and their level of debt stays high, their score will probably reflect this negatively.

Short credit history — If you’ve never had a credit account or a loan, you’ve only had credit for a short while, or you’ve had credit lines but haven’t used them, lenders may be hesitant to loan you large amounts of money. Lenders prefer long, clean histories with a track record of repaying the money you borrow.

Many recent credit applications — If a prospective borrower has applied for many new loans or credit cards in a short period of time, it can affect their score.

Too few credit cards or accounts — Having too few credit accounts could mean that the balances on these accounts remain close to the credit limit over time, which may negatively affect a borrower’s credit score. It is better to have a few accounts with low balances, rather than one or two accounts that are close to the credit limit.

Too many credit accounts — Having too many credit cards or loans can be bad for your credit score. As a general rule, experts recommend that you shouldn’t have more than three or four credit cards.

Credit issues won't disappear overnight

Depending on the lender you choose, past problems like irregular or late payments can negatively affect your credit score for up to seven years. In the case of bankruptcies, your score can be affected for up to ten years. That’s why repairing credit problems are essential for achieving your financial goals. That’s also why people with less than perfect credit should be selective about the lender they choose.

Countrywide Bank’s Full Spectrum Lending Division believes in helping people with less than perfect credit find the home loan that meets their needs. We realize that everyone encounters problems that can lower your credit score. But we specialize in helping people who think they have imperfect credit qualify for prime loans, whenever possible.