How is your credit score calculated ?

[UM-Bot]

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Phillip Tilley: The following is an excerpt from the book “The Money Matrix of the New World Order”. What is a credit score? It is a system used by lenders to determine if you are worthy of credit being established in your name. Information is collected from your loan application and your credit report. This includes your bill paying history, how many loans you already have and how you pay them on time or not, anything that has been turned over to collections, the age of your accounts, outstanding debt, and credit cards.

Creditors take this information and run a statistical analysis to determine the amount of risk you pose. This information is compared to other people with similar profiles to yours. A scoring system awards points for each factor that predicts who is most likely to repay a debt.

The most common risk assessment program of this type is “Fair Isaac” or FICO. Scores run from a low of 300 to a high of 850. The higher the score the less risk to the lender. My score was 512. My credit was so bad I couldn’t even charge a battery!

I tried to find out exactly how the score is determined. It is a closely guarded secret, like the seven herbs and spices in Kentucky Fried Chicken and the formula for Coke. This is what I was able to find out.

Five main factors are used to determine your score. The largest of these is your payment history or how you pay your bills, if you pay on time that is a good thing, paying late is bad. This amounts to about a third of your score. How many bills have gone 30 days, 60 days, or 90 days past the due date? Accounts sent to collections weigh heavy against you.

In my case, I had doctor bills that went 45 days before they were paid. That is because I waited for my insurance company to pay their part, then I paid what was left. The insurance company was slow, so I was also slow. This counted against me. I got dinged for not overpaying my medical bills. I thought I was being fiscally responsible, they mark me as a dead-beat.

I also paid my electric, gas and water bills every 90 days. When I got a notice that if I didn’t pay I would notice no services, I paid. This way I only had to write and mail a check every three months. I’m a busy person and this was easier for me. I get dinged again as a dead-beat.

A friend of mine is a contractor. He doesn’t get paid every two weeks like most people, he gets paid at the end of the job. And when the job is done, the people he worked for have 30 days before they legally have to pay him. This causes him to run a large balance on his credit cards for long periods until he gets paid. Then it doesn’t make any difference if he pays them off in full, he is already dinged as a dead-beat.

The second largest factor, again about a third of your credit score is the amount of debt you owe, and the amount of available credit you still have. If you are already paying a $20,000 car payment, and you still owe $10,000, then your available credit on that account is $10,000. If you have four credit cards and the available credit on each of them is $1,000, that adds up to $4,000. If you owe $600, your actual available credit on the cards is $3,400.

In my case I had no car loans and no credit cards. This counts against me because I didn’t have any available credit. Again to my way of thinking, I was being responsible by staying out of debt. If the creditors don’t have their hand in your wallet, they hold it against you. “What, I’m not making any profit at your expense?” They yell. Ding! Ding! Ding! Who’s in your wallet?

The third largest factor, about a sixth of your credit score, is the length of your credit history. That’s not inches or feet, it’s how long of time you have had credit in years. The longer you have had established credit, the more points you get.

In my case I was a credit virgin without a history. By staying out of debt, that is a major ding to your credit score. If we had real money, staying debt free would be a good thing, but we don’t have money, we have a debt based currency.

With a debt based currency if you don’t go into debt no currency is created. Not only are you not helping the economy to grow, you are not enriching the bankers with the fruits of your labor. They hold this against you. Again, you are encouraged by the lenders and the Government to go into debt responsibly. Anything less is downright un-American.

I don’t want to sound like a conspiracy theorist, but the Government does license banks and lenders to create currency. That’s the facts! That’s why they punish you with a bad score if you’re debt free and reward you with a good score if you get into debt. A twisted and warped system of punishment and reward designed to enslave you into playing the game.

Once these financial vampires sink their fangs into you, they will suck you financially dry until death do you part. It’s easy to get into debt and tough to get out. Like financial quicksand, the more you struggle, the deeper you go! A friend of mine used one credit card to pay his other credit card bills. You have to give credit where credit is due!

The fourth factor, about a fifth of your credit score is your mix of credit. Do you have credit cards, a mortgage, a car loan, and a major oil company gas card? Good for you and your credit score if you do. That’s a pretty complete mix so the lenders can see how well you handle your credit.

My good friend Rocco was late with payments on a consistent basis. The lender said, “Rocco, you don’t know how to manage your money.”

Rocco said, “That’s not true, I don’t have any money to manage!”

I thought he should get points for being consistent. If you are a credit virgin like me, you don’t have any mix and that lowers your credit score. All things in moderation, including credit. I just can’t find logic in paying service fees and interest to five different creditors for the privilege of them allowing me to have credit. To me, that is mismanaging your finances.

If everyone stopped paying 10% of their earnings to creditors, the economy would prosper. Sure lenders might go out of business, but if it keeps the economy moving I’m in. “What’s in your wallet?” asks a major credit card company.

“You’re not!” I respond. They try to make you feel barbaric if you don’t use credit cards. Barbarians didn’t accept paper or plastic, it was gold or silver or off with your knob. Okay, call me barbaric, but I much prefer heavy metal to a magnetic strip. Some people grab their credit cards and charge to the rescue.

The final factor, again about a fifth of your credit score is new credit applications. If you start filling out applications for credit all at one time the lenders get suspicious. You may be in a financial bind, or maybe you intend to charge up a huge debt and go bankrupt. This lowers your score.

If you’re a credit virgin like me, applying for your mix of credit all at one time is like gang banging the football team. All that credit a once is too much for a credit virgin to handle. You may pull one knob at a time. They don’t want a credit whore on crack. Too much risk. Ding ding ding!

As you can clearly see, what goes into your credit score calculation looks more like a witches brew than science. And the best question I can think to ask about this whole risk assessment process is, what is the lender risking?

It’s not like they are loaning you anything real. If you borrow a tool from your neighbor, you give the tool back when you are done with it. The bank does not loan you a tangible asset, it creates a debt liability out of nothing to loan you. They risk “Nothing!” So where is the risk? Truly if they gave you nothing and you give them nothing back what difference does it make? If you give me nothing and I’m unable to give none of the nothing back, what happens?

You dug a hole, and if you don’t fill the hole back up it will remain a hole. This cannot happen in double entry bookkeeping. Everything must balance. The hole must be filled. The risk to the lender is that if they make loans that don’t get paid back, the Government may take away their license and privilege to create currency.

Credit then is really the currency that is created by debt. Federal Reserve Note currency has a credit value at its creation as cash. If you already have currency, it is credit. This is what sets your credit score. A simple question to determine credit worthiness would be, “Do you have any currency and if so how much?”

No cash equals no credit. If you don’t have any then you’re not worthy. You are obviously poor and are therefore a poor risk!

Ever notice when you “need” a loan they won’t give you one because you lack credit, which is really currency?

If you have lots of currency you have lots of credit and that is good. You must be rich and rich people are not a poor risk. Giving credit to someone who does not need it is pretty safe.

We have been taught to believe that money, credit, and currency are synonymous. They’re not. Money has real value, currency has no value and credit has a negative value.

Wake up people, the Money Matrix has you!

Phillip Tilley is author of The Money Matrix of the New World Order and other articles.

[Space Commander Travis]

While I'm as yet not totally convinced about the New World Order, I otherwise agree totally there. When you get basically down to it, none of it exists, does it? it's all completely barmy.

But governments must slash spending on real things, to pay off a (completely imaginary) debt to some shadowy Other.

So what could they do if we just ignored these people? just ignored their extortion? The ecomony would collapse? Western civilisation would collapse?

Something I think Western civilisation is so barmy it deserves to.

[Sag!ttarius]

So what started as a good idea story turned into a rant against the evil lenders trying to pick your pocket because you DON'T pay your bills on time and lack revenues or common sense to pay your bills on time or you haven't figured out how to setup the bank account to to do it automatically "cuz U so bizy".... How about taking responsability of your own actions? And the Fair Isaac system is really not a secret freakin' recipe, it's common knowledge

1. How you pay your bills (35 percent of the score)

The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.

2. Amount of money you owe and the amount of available credit (30 percent)

The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.

3. Length of credit history (15 percent)

The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.

4. Mix of credit (10 percent)

The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."

5. New credit applications (10 percent)

The final category is your interest in new credit -- how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.

Although you should feel bad about a 512 score. Really the bottom of the credit food chain, in America anywayedit score

Percentage

499 and below : 2 percent

500-549 : 5 percent

550-599 : 8 percent

600-649 : 12 percent

650-699 : 15 percent

700-749 : 18 percent

750-799 : 27 percent

800 and above : 13 percent

Edited December 30, 2009 by Sag!ttarius

[Oen Anderson]

So what started as a good idea story turned into a rant against the evil lenders trying to pick your pocket because you DON'T pay your bills on time and lack revenues or common sense to pay your bills on time or you haven't figured out how to setup the bank account to to do it automatically "cuz U so bizy".... How about taking responsability of your own actions? And the Fair Isaac system is really not a secret freakin' recipe, it's common knowledge

1. How you pay your bills (35 percent of the score)

The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.

2. Amount of money you owe and the amount of available credit (30 percent)

The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.

3. Length of credit history (15 percent)

The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.

4. Mix of credit (10 percent)

The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."

5. New credit applications (10 percent)

The final category is your interest in new credit -- how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.

Although you should feel bad about a 512 score. Really the bottom of the credit food chain, in America anywayedit score

Percentage

499 and below : 2 percent

500-549 : 5 percent

550-599 : 8 percent

600-649 : 12 percent

650-699 : 15 percent

700-749 : 18 percent

750-799 : 27 percent

800 and above : 13 percent

So, which evil lender do you work for? Statisticlly people who are upset when Tilley exposes their business practices are part of the business that was exposed. My credit score is 740 and since the credit crunch my lender informes me that is no longer considered good. I need 750 or higher. And who is this Watts you quote?

[Space Commander Travis]

How about taking responsability of your own actions? And the Fair Isaac system is really not a secret freakin' recipe, it's common knowledge

How about the financial "industry" taking some responsibility, instead of being a parasite sucking the blood out of people?

[Mbyte]

Well the lenders are evil ****s. This ruined Irelands economy. One bank started doing a particular type of loan to contractors. The debt was just moved to the newest account that was opened for a new project. The contractor could keep building and building and building. The contractors and the bankers got pretty close and they would go out for wine and dinner. After a while certain politicians and contractors were fast tracked and weren't even assessed, they were just given the money. All it took was a simple phone call. The other banks were feeling the pinch. This one bank started giving out 100% mortgages. The other banks finally started doing similar crap and eventually the whole thing crashed. Now we have "toxic loans" the banks are not going to pay them back. The banks weren't giving out any more loans because of these huge debts. The government are setting up NAMA. A government bank wear all the tax payers are going to pay back the millions of debt that was built up over that time. They are taking the debt of the banks so they can trade money again. Financial regulators had no power over finical regulations, all they could do was tell the bankers that what they were doing was bad. The bankers didn't have to listen. At the moment here anyway the bankers now have their hand in everyone’s pocket due to these toxic debts. All the loans were based on assets and now all those assets have dropped in value. We are being sucked dry. The very concept of interest sucks you dry if you never pay back a loan. Interest will go on forever.

Developing countries' debt is external debt incurred by the governments of Third World countries, generally in quantities beyond the governments' political ability to repay. "Unpayable debt" is a term used to describe external debt when the interest on the debt exceeds what the country's politicians think they can collect from taxpayers, based on the nation's Gross domestic product, thus preventing the debt from ever being repaid.

Bankers are basically infinatly rich. Bankers do follow you to the grave, then your off spring if they aren't payed off. They don't think twice about taking the house off you if the books don't balance even if it's their own fault.

Edited January 2, 2010 by Mbyte