Do the three credit reporting agencies use your wealth when they calculate your credit score?
June 15, 2010 - 11:06 pm
Consumer A has $5 dollars in the bank but manages to pay his bills on time. Consumer B has $5 million in the bank but is disorganized and pays some bills late. Who has the better credit score?
No they do not credit scores are based on the following factors only;
1. Payment history 35%
2. Time in bureau 15%
3. Types of credit 10%
4. New credit 10%
5. Debt to credit ratio 30%
The credit bureaus have no way of knowing how much money people make.
So consumer A would have the better socre.
June 16th, 2010 at 4:21 am
Wealth is not indicated anywhere in your credit score. Consumer A has the better credit history and FICO score. That does not mean he’s most likely to get a loan, however. Lenders use your credit score as one piece of the puzzle, but they also consider income, savings, other debts, etc. to come up with their own score.
References :
June 16th, 2010 at 4:39 am
Consumer A has the better score. Credit scores are not a comment on how wealhy you are – they are a prediction of how likely you are to pay your bills in the future, based on how reliable you have been in paying bills in the past.
FICO scores are calculated using a 100 point system, divided into the 5 areas that lenders care about the most:
1. Paying your bills on time = 35%
2. Your debt to credit ratio = 30% (This means how much debt do you have, relative to the total credit available to you. If you have two credit cards, both with a limit $1,000 each, your total available credit is $2,000. If you owe $250 on each card your total debt is $500 – only 25% of the avilable total of $2,000. Lenders like this ratio to be a maximum of 30-35%. In other words, try to not use more than $350 out of every $,1000 you have available.)
3. Frequency of new credit applications = 15%
4. Variety of credit types, for example installment, bank credit, credit cards = 10%
5. How old your accounts are = 10%.
This means that just 2 things, (1) pay on time, and (2) keep your debt below 30-35% of your available credit, will effect the vast majority of your score. These 2 things along make up 65% of your total 100 point FICO score – well over half.
References :
http://www.credit-cards-comparisons.com/average-fico-score.html
June 16th, 2010 at 5:02 am
Consumer A definitely. Credit score has nothing to do with how much money one has in the bank. Credit scores are meant to show patterns of payment, and the credit worthiness of a consumer. If you only have $5 to your name and pay all your bills on time, you have the better credit score than a millionaire who can’t pay his bills on time.
You cannot find one’s checking, savings, money market, or any other account balance on any credit report.
References :
June 16th, 2010 at 5:49 am
Consumer A would have a better credit score. The credit reporting agencies do not have access or knowledge of your income. Your creditors (credit cards, auto loan, etc) report to these agencies of your payment history (late, on time, etc). Your credit score is determined by the number of open accounts you have and your predictive habits of paying on time or late.
References :
June 16th, 2010 at 6:29 am
No they do not credit scores are based on the following factors only;
1. Payment history 35%
2. Time in bureau 15%
3. Types of credit 10%
4. New credit 10%
5. Debt to credit ratio 30%
The credit bureaus have no way of knowing how much money people make.
So consumer A would have the better socre.
References :
Finance Manager for almost 9-years / 2008 edition Consumer Action Handbook.
June 16th, 2010 at 6:51 am
A variant on another question you asked…
The guy who pays all his bills on time has the better score.
What don’t you believe???
References :
June 16th, 2010 at 7:22 am
They would be the same. So neither.
Credit Score has nothing to do with wealth.
I could make $900k a year and you could make $50k a year and we could both have around 700 credit score.
Credit Score is based on credit. How much credit are you allowed? That is what determines your credit score.
Have you ever heard of the term no credit is bad credit? That’s because no credit, means 0 credit. And if you are allowed $0 in credit, then you don’t have a good score.
So say you pay your bills on time such as electric, phone, cable, etc. It has nothing to do with your credit score. But if you negelcted to pay your bills on time, and they turned it over to a collection agency, then it would reflect poorly on your credit score.
So in order to get a good credit score, you have to USE credit. That means yes, you need credit cards, loans, etc to build your credit.
Paying your phone bill, etc. on time does not help out your credit.
Being negligent to your phone bills, etc if turned over to collections can affect your credit in a bad way.
So keep in mind that wealth and normal bills won’t do anything to your credit score.
How much credit and how you handle that credit determines your credit score. Lots of credit and paying on time, is the best way to get a high score.
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