Credit scoring has been the main method for credit card issuers to approve card holders for new cards and credit line increases in seconds. The credit scoring concept is based on boiling down a borrower's entire credit history into one objective number. To help borrowers understand where they might score when they apply for a mortgage, the Mortgage Almanac researched exactly how credit reporting companies come up with scores for borrowers. Credit scoring systems analyze and combine five key factors to obtain a single credit score. The most important factor, of course, is a borrower's record of paying their debts.
Primary emphasis is placed on the last two years of payment history on currently outstanding debts.
Thus, one 30 day late payment on a credit card or car loan within the six months prior to a credit scoring date could reduce a total score much more than four late payments four years earlier. Combined with payment histories, collection accounts and public records are also factored into a borrower's credit score. Medical bills that go to collection, bankruptcies and lawsuit judgments all drag down total scores. Surprisingly, a bankruptcy does not automatically bring a credit score below the 620 threshold. Mortgage professionals report numerous instances of borrowers with past bankruptcies on their credit report earning better credit scores than borrowers without one.