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Lee Street Management uses your credit score to determine what
degree of financial risk we might assume if we rent an apartment
to you. It has predictive value that tells us how likely you
are to make rent payments on time. The credit score is calculated
using information found in your credit reports. Usually each
person living in the United States who has a Social Security
number, whether a citizen or not, will have three versions of
credit reports to their name. Equifax, Experian and TransUnion
are three companies (credit repositories) that collect your
credit information and provide your credit report (also known
as a credit profile) to your lenders/creditors. Credit reporting
bureaus also provide lenders with your FICO®
credit score, which is a credit worthiness quantifier designed
by Fair, Isaac & Company, Inc.
The
FIVE Things That Count Most
1.
Payment History: Approximately
35% of your score is based on
your Payment History.
The
first thing we would want to know is whether you have paid past
rent on time. This is also one of the most important factors in
a credit score. However, late payments are not an automatic "rejection."
An overall good credit picture can outweigh one or two instances
of late credit card payments. By the same token, having no
late payments in your credit report doesn't mean you will get
a "perfect score." Some 60-65% of credit reports show no late
payments at all — your payment history is just one piece
of information used in calculating your score.
Your score takes into account:
Payment
information on many types of accounts. These will include
credit cards (such as Visa, MasterCard, American Express and
Discover), retail accounts (credit from stores where you do
business, such as department store credit cards), installment
loans (loans where you make regular payments, such as car loans),
finance company accounts and mortgage loans.
Public
record and collection items — reports of events such as
bankruptcies, judgments, suits, liens, wage attachments and
collection items. These are considered quite serious, although
older items will count less than more recent ones.
Details
on late or missed payments and public record and collection
items — specifically, how late they were, how much was
owed, how recently they occurred and how many there are.
A 30-day late payment is not as risky as a 90-day late payment,
in and of itself. But recency and frequency count too. A 30-day
late payment made just a month ago will count more than a 90-day
late payment from five years ago. Note that closing an account
on which you had previously missed a payment does not make the
late payment disappear from your credit report.
How
many accounts show no late payments. A good track record
on most of your credit accounts will increase your credit score.
2.
Amounts Owed: About
30% of your score is based on
the Amount You Owe.
Having
credit accounts and owing money on them does not mean you are
a high-risk tenant with a low score. However, owing a great deal
of money on many accounts can indicate that a person is overextended,
and is more likely to make some payments late or not at all. Part
of the science of scoring is determining how much is too
much for a given credit profile.
Your score takes into account:
The
amount owed on all accounts. Note that even if you pay off
your credit cards in full every month, your credit report may
show a balance on those cards. The total balance on your last
statement is generally the amount that will show in your credit
report.
The
amount owed on all accounts, and on different types of accounts.
In addition to the overall amount you owe, the score considers
the amount you owe on specific types of accounts, such as credit
cards and installment loans.
Whether
you are showing a balance on certain types of accounts.
In some cases, having a very small balance without missing a
payment shows that you have managed credit responsibly, and
may be slightly better than no balance at all. On the other
hand, closing unused credit accounts that show zero balances
and that are in good standing will not generally raise your
score.
How
many accounts have balances. A large number can indicate
higher risk of over-extension.
How
much of the total credit line is being used on credit cards
and other "revolving credit" accounts. Someone closer to
"maxing out" on many credit cards may have trouble making payments
in the future.
How
much of installment loan accounts is still owed, compared with
the original loan amounts. For example, if you borrowed
$10,000 to buy a car and you have paid back $2,000, you owe
(with interest) more than 80% of the original loan. Paying down
installment loans is a good sign that you are able and willing
to manage and repay debt.
3.
Length of Credit History: About
15% of your score is based on
your Duration of Your Credit History.
In
general, a longer credit history will increase your score. However,
even people with short credit histories may get high scores, depending
on how the rest of the credit report looks.
Your score takes into account:
How
long your credit accounts have been established, in general.
The score considers both the age of your oldest account and
an average age of all your accounts.
How
long specific credit accounts have been established.
How
long it has been since you used certain accounts.
4.
Are You Taking on More Credit: About
10% of your score is based on
the pattern of your credit use.
People
tend to have more credit today and to shop for credit — via
the Internet and other channels — more frequently than ever.
FICO scores reflect
this fact. However, research shows that opening several credit
accounts in a short period of time does represent greater risk
— especially for people who do not have a long-established
credit history. This also extends to requests for credit, as indicated
by "inquiries" to the credit reporting agencies — an inquiry
is a request by a lender to get a copy of your credit report.
The FICO scores distinguish between searching for many new credit
accounts and rate shopping, which is generally not associated
with higher risk. In part, this is handled by treating a grouping
of inquiries — which probably represents a search for the
best rate on a single loan — as though it was a single inquiry.
Your score takes into account:
How
many new accounts you have. The score looks at how many
new accounts there are by type of account (for example, how
many newly opened credit cards you have). It also may look at
how many of your accounts are new accounts.
How
long it has been since you opened a new account. Again,
the score looks at this by type of account.
How
many recent requests for credit you have made, as indicated
by inquiries to the credit reporting agencies. Note that
if you order your credit report from a credit reporting agency
— such as to check it for accuracy, which is a good idea
— the score does not count this. This is considered a "consumer-initiated
inquiry," not an indication that you are seeking new credit.
Also, the score does not count it when a lender requests your
credit report or score in order to make you a "pre-approved"
credit offer, or to review your account with them, even though
these inquiries may show up on your credit report. If you have
several recent inquiries from other property managers or landlords,
your score will reflect the probability that you have been denied
other apartments.
Length
of time since credit report inquiries were made by lenders.
Whether
you have a good recent credit history, following past payment
problems. Re-establishing credit and making payments on
time after a period of late payment behavior will help to raise
a score over time.
5.
Types of Credit in Use: About
10% of your score is based on
the type of Credit you use.
According
to the information provided by the Fair & Isaac, the creater
of FICO credit score, about 10% of your credit score is
based on
What
kinds of credit accounts you have, and how many of each.
The score is a complex formulat that takes into account both
the types of account, their mix and the total number of credit
accounts you have under your name.
Credit
account types include: credit cards, retail accounts, installment
loans, finance company accounts and mortgage loans. In general,
the effect of how many accounts you have and their mix would vary
with your income and other factors. It is not recommended that
you open new accounts just to "diversify" your credit
profile. This part of the credit score is more important if you
do not have a lot of other credit information on your file, as
would happen for example to young adults.
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