Credit Scores Up Close
Posted on 2015-11-04 08:00:56
Your credit score is a computer-generated number that summarizes the information in your credit report such as how you have handled past credit obligations and your current credit standing. This information is compared to statistical models to give your credit history a score. Credit scores are intended to predict how you will handle future credit obligations. The higher your credit score, the lower the risk a lender takes in providing you credit.
Many Credit Score Models
There are many credit scoring models in use today. Although the criteria used is similar for all models, there can be slight variations and scales. One scoring model may go from 300 to 850 while another may go from 500 to 990. Because so many different scoring models are used, there is no single “good” credit score. But a good credit score on one scale will usually translate to a good credit score on another scale.
Three Credit Bureaus
There are three primary credit bureaus—Equifax, Experian and TransUnion. The credit bureaus are independent companies in the same business. Some creditors may report your credit activity to only one or two bureaus. Your stellar credit record with a particular lender may not be reported to the credit bureau another lender uses to check your credit score.
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Even with the same scoring model, every company sets its own criteria. What one lender calls a good credit score, another may call fair. Or, the standard may vary depending on the situation. For example, there may be a higher standard for a mortgage than for an automobile loan or credit card application.
Reliability of Credit Scores
Credit scores have stood the test of time for being powerful predictors of a consumer’s future credit performance. Lenders have found a strong correlation between credit scores and delinquency rates. Although they may seem to be arbitrary, credit scores allow creditors and others to evaluate applications consistently and impartially. Credit scores are not always the final word, however. Creditors may also review your credit report and take into consideration other factors from your application such as your income and employment status.
Why Your Credit Score Matters
Your credit score can have a significant impact on your life. With today’s technology, credit scores can be used day and night to make an instant assessment of your creditworthiness. Knowing and understanding your credit score can give you a financial edge that could put money in your pocket through lower interest rates and lower monthly payments.
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