How is a credit score calculated?

A credit score is a mathematical value assigned to several criteria used in making lending decisions. Criteria include the amounts you owe on both secured and revolving accounts along with your payment and credit history. Scorers take this information from your credit report and plug it into formulas that calculate a value representing the amount of risk you pose to a lender on any given day. That value then takes into account the track record of other consumers with a similar credit history. Fair Isaac Corporation calculates the most widely used FICO credit score, on a scale ranging from 300 to 850. It is used nationwide by lenders to judge your credit worthiness. Statistically it's more than possible but probable that there are discrepancies among information held at each of the three Credit Bureaus that can and will affect your scores and the lending you are available to.

What else affects my chances for qualifying for a loan?

A credit score is just one component of the Credit Profile. This is especially true in the case of mortgages and car loans. In examining these types of applications a lender will look beyond your raw credit score to scrutinize your payment history, among other things. For instance, the fact that the late payments on your credit report were on a small credit card (as opposed to a mortgage) could work in your favor. Lenders also take into account such factors as your income and earning potential, both indicators of your ability to repay a loan. Two borrowers with above-average FICO scores, of say 660, can get different interest rates, based on their existing debt burden and ability to meet required payments based on their income.

Is the score treated the same for all kinds of loans?

Generally speaking, no. A mortgage loan, by virtue of its size and long repayment terms, will usually require you to have a higher score to qualify for a favorable rate than, for example, a credit card. But the nature of the loan may also play a role. For instance, a borrower with a low credit score applying for a 15 year mortgage with a 25% down payment may qualify for a better rate than someone applying for a one year adjustable rate mortgage. Mortgage lenders will typically look at all of the risks involved before deciding on a rate. A lender whose loan portfolio has a high concentration of risky clients may require you to have a higher scores to qualify for a prime interest rate than a lender with relatively lower risk in its portfolio. So it's possible that given a particular score, you might get a prime rate with one lender, and get a less favorable rate with another.

Who has access to my credit reports?

Users with a permissible purpose to obtain a consumer report include not only those to whom consumers have applied for credit, but anyone who plans to use the information to collect on a consumer's debt. This means, for example, that a consumer reporting agency may furnish a consumer report to a debt collection agency, a judgment creditor, the holder of a dishonored check or other persons collecting on a consumer's debt owed to that person. An attorney representing a client to whom the debt is owed would also have a permissible purpose to obtain a consumer report.

Can anyone purchase my information?

Your personal information is not private. In fact, nearly all of your financial information is up for sale. Your name, address, phone numbers, email addresses, credit limits, balances and scores, maiden name, previous addresses, lenders you have applied for credit with - all of this information is readily available on the open market through the Credit Reporting Agencies, at a price. All three of the CRAs are cashing in on your personal, private, confidential, financial information, legally. Without either your knowledge or consent.

What about Identity Theft?

Due to under-reporting and other measurement problems, there are no precise measures of the number of Americans who are victimized by identity theft each year. However, a March 2002 U.S General Accountability Office Report to Congressional Requesters found that "the prevalence and cost of identity theft seem to be increasing." GAO-02-363, "Identity Theft Prevalence and Cost," at 3 (emphasis added) (March 2002). The facts support this conclusion:

"79% increase. According to one study, 7 million U.S. adults were victims of identity theft in the past year, a 79% increase over the previous year."
-- Gartner Inc. survey, "Underreporting of Identity Theft Rewards the Thieves," (July 2003).

"11.8 million. According to one study, 11.8 million Americans are estimated to have been victims of ID theft."
-- Star Systems, a Concord EFS, Inc. subsidiary, in conjunction with Powell Tate, "ID Theft in the United States: An Update," at 6 (Dec. 2002).

"More than $1 billion. The U.S. General Accountability Office found that, using law enforcement's broad definition of identity theft, total credit card fraud losses were "about $1 billion in 2000." Combined with additional losses to other financial services companies, loss avoidance costs, and the costs to consumers to repair their records after being victimized, the total costs are likely well-over $1 billion per year."
-- GAO-02-363, "Identity Theft Prevalence and Cost," at 6-9 (March 2002).