Your Credit Score | How Credit Scoring Works |
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What is a credit score? While a credit report can be considered your detailed financial history, a score is an objective summary of that information. It represents your creditworthiness as a number. Numerical weights are placed on different aspects of your credit report and a mathematical formula or computation is used to arrive at a final score. There are literally thousands of score models used in the credit industry which consider different variables for different types of credit. Credit bureaus offer several different types of scores in their product portfolio, appealing to the vast array of creditors and credit applications in the country. What is a credit score used for? Credit scores are one of the primary tools a creditor uses when determining the risk in lending money to you. Creditors use scores, among other things, to determine whether or not to grant you credit and, if so, how much credit and at what rate. Creditors will also access and consider your credit report, which can provide further substantiation on a given component of a score that could affect their final decision. However, as most credit decisions are made very quickly, it is a credit score that is most often used To find out your credit score and how it is computed go to each of the credit reporting agencies websites listed below. Transunion www.transunion.com Equifax www.equifax.com Experian www.experian.com Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk. In order for a FICO® score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information — and enough recent information — in your report on which to base a score. About FICO scores Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair, Isaac and Company (FICO). FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian, and TransUnion. FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending decisions, each lender has it own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score" used by all lenders and there are many additional factors that lenders use to determine your actual interest rates. More than one score In general, when people talk about "your score," they're talking about your current FICO score. However, there is no one score used to make decisions about you. This is true because: (1) Credit bureau scores are not the only scores used. Many lenders use their own scores, which often will include the FICO score as well as other information about you. (2) FICO scores are not the only credit bureau scores. There are other credit bureau scores, although FICO scores are by far the most commonly used. Other credit bureau scores may evaluate your credit report differently than FICO scores, and in some cases a higher score may mean more risk, not less risk as with FICO scores. (3) Your score may be different at each of the three main credit reporting agencies. The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs. (4) Your FICO score changes over time. As your data changes at the credit reporting agency, so will any new score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today . Interpreting Credit Scores When a lender receives your Fair, Isaac credit bureau risk score, up to four "score reason codes" are also delivered. These explain the top reasons why your score was not higher. If the lender rejects your request for credit, and your FICO® score was part of the reason, these score reasons can help the lender tell you why your score wasn't higher. These score reasons are more useful than the score itself in helping you determine whether your credit report might contain errors, and how you might improve your score over time. However, if you already have a high score (for example, in the mid-700s or higher) some of the reasons may not be very helpful, as they may be marginal factors related to the last three categories described previously (length of credit history, new credit and types of credit in use). Common score reasons Here are the top 10 most frequently given score reasons. Note that the specific wording given by your lender may be different from this.
Other Names For FICO® Scores FICO scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods by Fair, Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data. CREDIT REPORTING AGENCY FICO SCORE Equifax BEACON® Experian Experian/Fair, Isaac Risk Model TransUnion EMPIRICA® What Fico Scores Ignore FICO scores consider a wide range of information on your credit report. However, they do not consider:
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Equal Housing Lender.