Tip of the Month - August 2008
Source: Every Landlord’s Guide to Finding
Great Tenants by Attorney Janet Portman: Author of Every
Landlord’s Legal Guide
The credit score is a
number that is supposed to indicate the risk that an individual will
default on payments (like rent). The credit score is sometimes
known as a “FICO” score (named for the biggest
credit-scoring company, Fair Isaac Corporation). Only Equifax
uses the “real” FICO score: TransUnion and Esperian use
their own, similar scoring methods. A bare-bones credit report
won’t include a credit score, but you can order one for a little
bit extra (with some reporting agencies, you’ll have no choice
but to pay for one.) The true value of a FICO score is debatable,
as explained below in “What does the score really tell you?”
Fair Isaac uses several factors when generating credit
scores-but interestingly, income is not a factor. The issue is
how people manage what they have, as evidenced by:
#1 The individual’s on-time bill-paying history (about 35% of the score).
#2 Amounts owed on credit accounts (about 30% of the score). Fair Isaac
looks at the amount owed on all accounts and whether there is a
balance. They are looking to see whether the consumer manages
credit responsibly. It may view a large number of accounts with
high balances as a sign that the person is over extended.
#3 Length of credit history (about 15% of the score). In general, a longer credit history increased the score.
#4 Any new credit (about 10% of the score.) Fair Isaac
likes to see an established credit history without too many new
accounts. Opening several accounts in a short period of time can
represent greater risk.
#5 Types of credit (about 10% of the score). Fiar
Isaac is looking for a healthy mix of different types of credit.
This factor is usually important only if there is not a lot of other
information upon which to base a score.
Next month-September 2008
“What’s an acceptable range?”
to prior page
This web page was updated on 07/30/2008.