The subject of credit scoring is very important today. Credit scoring seeks to qualify the likelihood of a consumer to pay off debt without being more than 90 days late at any time in the future. Scores can range between a low of 300 and a high of 850. A score of 620-640 is required to get most home loans.

There are five factors of credit scoring:

1. Payment history – 35% impact
2. Outstanding Credit Balances – 30% impact. Ideally a consumer should make every effort to keep balances close to zero, and definitely below 30% of the available credit limit.
3. Credit History – 15% impact
4. Type of Credit – 10% impact. A mix of auto loans, credit cards, and mortgages is more positive than just debt from credit cards.
5. Inquiries – 10% impact. This considers the number of inquiries made on a consumer’s credit within a six-month period.

It is important that you check your credit report every year. You can check it free at www.annualcreditreport.com. If there is any incorrect information you need to dispute it.
Based on the 2004 survey done by U.S. Public Interest Research Group:

• 25% of the credit reports contained errors serious enough to deny credit
• 79% contained some kind of mistake
• 54% contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect.
• 30% contained credit accounts that had been closed by the consumer but incorrectly remained listed as open

So even if you think you have fantastic credit, it is important to have a lender check it. There could be something on it that isn’t yours and has caused a low score.

SOURCE: U.S. Public Interest Group Research; One In Four Credit Reports Contains Errors Serious Enough to Wreak Havoc For Consumers, US PIRG Press release, 06/17/04 http://uspirg.org/uspirgnewsroom.asp?id2=13650&id3=USPIRGnewsroom