The Anatomy of My Credit Score

Two weeks ago Equifax was offering a free credit score for the first 10,000 applicants. Fortunately for me I was able to take advantage of this offer. It was very interesting to see my credit score as I was closing on my condo that same week. Equifax calculated my credit score to be 723 and put me into the “Good” score.

Equifax Scores and Classifications

Equifax scores range from 300 to 850. My score of 723 puts me above 50% of US consumers. Equifax has five categories to classify your credit: bad, not good, good, very good and great. Bad ranges from 300-559, not good ranges from 560-659, good ranges from 660-724, very good ranges from 725-759 and great ranges from 760-850. Looks like I just missed having a very good credit score by two points.

Factors Affecting my Score

There are four categories that Equifax looks at when determining a credit score. These four categories are amount of debt, amount of new credit, payment history and length of credit history. I was rated as good in the amount of debt category, very good in the amount of new credit category, great in the payment history category and not good in the length of credit history.

Factors Hurting my Score

The following factors are hurting my score with the first factor having the greatest negative impact.

• Short Credit History – This factor measures both the age of the longest account and the average age of all accounts. The age of my longest account is 5 years and 11 months. The average age for the longest account of high credit scores is 19 years. The average age of my accounts is 3 years. The average age for high credit scores is between 6 and 12 years. The negative impact of my short credit history will only diminish if I continue to make payments on time.
• Recently Been Looking for Credit – This factor measures how many hard credit pulls were performed on your behave over the past 12 months. Apparently, people who are actively seeking credit are riskier to lenders. I had 2 credit inquiries over the past 12 months. 72% of high credit scores did not have any credit inquiries in the past 12 months.
• No Recent Activity on Revolving Accounts – This factor looks at the activity on revolving credit accounts such as credit cards. People who demonstrate the responsible use of revolving credit are less risky. I don’t really understand this ding on my credit score as I have two open credit cards that I use regularly. I have one closed credit card. I also have a car loan, which I have paid on time for over two years. Either something is wrong on my report or I don’t fully understand the definition of recent activity on revolving accounts.

Factors Helping my Score

The following factors are helping my score with the first factor having the greatest positive impact..

• No Missed Payments on Credit Accounts – This factor is pretty self-explanatory. If you make your payments on time you are less risky. I have 0 missed payments on my account. 93% of high scorers have no missed payments at all. Those who do have missed payments missed the last payment nearly 4 years ago on average.
• Low Balance on Revolving Accounts – This factor evaluates how much of your available credit you use. I have $226 on my revolving accounts, which is interesting because I just recently purchased a new lcd tv and it was definitely more than $226. The average balance for high scorers is $2,300, which seems like a lot.
• Moderate Number of Credit Cards – This factor looks at the total number of open and closed credit cards. I have 3 total accounts on my credit history. The average number of accounts for high scorers is 4 to 5. I disagree that the total number of credit cards should be a factor in determining credit score. Does it really matter how many cards you have as long as you keep the total balance low and pay it off every month? Also, why does it matter how many closed accounts you have?

How Lenders View my Credit Score

According to Equifax, my credit score of 723 leaves me with a risk rate of 5%. The higher the credit score, the lower the risk rate. The risk rate is also defined as a delinquency rate. Equifax defines the delinquency rate is defined as the percentage of borrowers who reach 90 days past due or worse on any credit account over a two year period. The following chart shows how the delinquency rate varies with credit score.

Conclusion

I was very lucky to stumble on a free copy of my credit score. Overall, I am very happy with Equifax’s presentation and explanation of my credit score. I don’t necessarily agree that the activity of my revolving credit accounts has been low and if I hadn’t already received my loan I might question the accuracy of that factor. Also, I completely disagree that closed credit card accounts factor into a credit score. Similarly, if closed credit card accounts factor into a credit score, why don’t paid off loans? I have completely paid off a hefty school loan and it is not reflected in my credit score. In the end, I would recommend getting a copy of your credit score if you are taking out a loan for a large purchase in order to maximize your score.