The Credit Score Puzzle

by UrbanTurf Staff

The Credit Score Puzzle: Figure 1

Credit history is generally avoided as a topic of conversation at all costs. This is because most of us are in debt in one way or another. While some miss the occasional credit card payment or let the phone bill go two months before paying, there are those who have a mountain of credit card debt that has amassed since college and rarely pay the telephone or cable bill before the credit bureaus come looking.

Depending on which of these camps you are in, your credit score could be mediocre or just plain awful. And anyone setting out to buy a home and apply for a loan will have their credit score calculated, whether they like it or not.

The score is essentially a number between 300 and 850 that indicates whether a person has good or bad credit based on their credit history. The higher the number is, the better the credit history and vice versa. Americans are entitled to a free credit report every 12 months from one of three credit bureaus: Experian, TransUnion or Equifax. A credit score is a crucial standard used by mortgage lenders as an indicator of how likely a borrower is to pay off their debts. For an excellent score in the range of 760-850, interest rates can be quite low. However, the lower the score, the higher the interest rate.

Not paying bills on time is the most common thing that can adversely affect a credit score, but high balances on credit cards and overdue loan payments are also factors.

Having too many credit inquiries also can hurt a score. In other words, for those people that wait several months to pay bills, and receive notices that their service might be cut off, a credit score will take this into account.

As a recent New York Times article noted, two other things that can have a long-term effect on a credit score are foreclosure and bankruptcy:

A foreclosure or bankruptcy can weigh you down for years. FICO has found that it takes three years for a borrower to pull a score back up to a fair-to-middling 680 after a foreclosure, according to Joanne Gaskin, a company director. A borrower who started out with a near-perfect 780 score would take about seven years to climb all the way back.

For those looking to improve their score, here are some tips courtesy of FICO:

  • Keep balances low on credit cards, and pay off debt rather than moving it around.
  • Do not close credit card accounts that you rarely use. It shows restraint that you haven’t been going on spending sprees and that you are aware of your credit obligations.
  • Apply for and open new credit accounts only as needed as opening new accounts will probably not raise our score.

See other articles related to: transunion, experian, equifax, credit score

This article originally published at http://dc.urbanturf.com/articles/blog/the_credit_score_puzzle/3724


  1. Anon said at 7:10 pm on Monday June 27, 2011:
    This article claims that you can have a 780 credit score seven years after bankruptcy. I'd love to know how to do that. My girlfriend has a seven-year-old bankruptcy on her credit record, but it's otherwise perfect (perfect payment history, very low credit card utilization, no recent inquiries, etc.) and her credit score is only 705.
  1. george said at 7:24 pm on Monday June 27, 2011:
    @ anon It is The New York Times article, not this one, that makes that claim. Still getting your credit back to a good place after bankruptcy takes a loooooong time.

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