What is credit scoring?
Credit scoring is a system creditors use to help determine whether to give you credit.

Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:

• Equifax: (800) 685-1111
• Experian (formerly TRW): (888) EXPERIAN (397-3742)
• Trans Union: (800) 916-8800

These agencies may charge you up to $9.00 for your credit report.

What can I do to improve my score?
Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

• Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
• What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
• How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
• Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
• How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

Where can you get more information?

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

My Fico.com            

                                                        Credit Inquiries

 

What is a credit inquiry?

A credit inquiry is an item on a credit report that shows a business with a "permissible purpose" (as defined under the federal Fair Credit Reporting Act) has previously requested a copy of the report.

Not all inquiries count toward your FICO score.

When you check your credit report, you may notice that a number of credit inquiries have been made, sometimes from businesses that you don’t know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

• Inquiries that count toward your FICO score.
  There is only one type of credit inquiry that counts toward your FICO score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your FICO score.
• Inquiries that don’t count toward your FICO score.
  Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.

Your FICO score is not affected when you check your credit.

Checking your credit reports regularly to be sure they are accurate and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your FICO scores over time.

You can order more than one of your credit reports with FICO scores right here at myFICO.com. Checking your score at myFICO does not count as an inquiry and will not hurt your FICO score.

How inquiries are factored into FICO scores.

There are five types of information used to calculate a FICO score at any given point in time. Each type of information counts as a percentage of a total FICO score:

Payment history	= 35%
Amounts owed	= 30%
Length of credit history	= 15%
New credit	= 10%
Types of credit in use	= 10%

These percentages are based on the importance of the five categories for the general population. For particular groups, such as people with relatively short credit histories, the importance of the categories may differ.

Inquiries are a subset of the "new credit" category shown above, which accounts for 10% of the total FICO score. Their importance depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. What's important is the mix of information, which varies from person to person, and for any one person over time.

Inquiries may or may not affect your FICO score.

A FICO score takes into account only voluntary inquiries that result from your application for credit. The information about inquiries that can be factored into your FICO score includes:

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
• Number of recent credit inquiries.
• Time since recent account opening(s), by type of account.
• Time since credit inquiry(ies).

A FICO score does not take into account any involuntary inquiries made by businesses with whom you did not apply for credit, inquiries from employers, or your own requests to see your credit report.

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry would take less than 5 points off their FICO score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

What happens when you apply for credit.

When you apply for credit, you authorize the lender to ask for a copy of your credit report. This is how voluntary inquiries appear on your credit report.

The inquiries section of your credit report contains a list of everyone who accessed your credit report within the last two years. The report you see lists both voluntary inquiries, spurred by your own requests for credit, and involuntary inquiries, such as when lenders order your credit report to offer you a pre-approved credit card.

Will my FICO score drop if I apply for new credit?

If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

What to know about "rate shopping."

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry. In addition, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping.

Improving your FICO score.

If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Generally, people with high FICO scores consistently:

• Pay bills on time.
• Keep balances low on credit cards and other revolving credit products.
• Apply for and open new credit accounts only as needed.

Also, here are some good credit management practices that can help to raise your FICO score over time.

• Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your FICO score over the long term.
• Check your own credit reports regularly, and before applying for new credit, to be sure they are accurate and up-to-date. As long as you order your credit reports through an organization authorized to provide credit reports to consumers, such as myFICO®, your own inquiries will not affect your FICO score.