How Your Credit Report is Calculated
Credit scoring is not a straightforward system. It is not like a report card where you get points and then demerits for certain actions, behaviors and answers. Instead credit scoring is calculated using “multi-variate” formulas.
A multi-variate formula basically means that the value of any given bit of information in your report might also depend on the value of other little bits of information.
Also your credit report is most likely to be calculated after the FICO model, which places more value on your current financial behavior than on past behavior. This means that the effects of your past bad behavior with money lessen if you handle credit responsibly in the present. In fact there is no better way to consistently improve your credit score.
The Isaac and Fair Credit Organization also designed this formula to specifically detect when a good credit risk might be turning into a bad one. The scores are designed to react extremely to any signs that someone with good credit might be abusing it. That is why someone with a great score might experience a great drop in points for a missed payment while someone with a lousier credit score may not experience such a severe penalty. The more you promise to be good through the reflection of a great credit score, the more you will be punished for breaking that promise in any way with a dramatically reduced three digit number.
In the next few sections of this guide we will be taking a look at some of the most important factors that can affect the evaluation of your FICO score. It is generally a lot easier to lose points on your score then it is to gain them back which is why it is important to learn how to improve and protect them always.