Credit Score : What does the FICO Credit Score mean?

Your credit score can mean the difference between being denied or approved for credits, and between receiving low or high interest rates. A good score can help you qualify for a rental apartment, and even help you get connected utilities without paying deposit.

 

WHAT IS THE CREDIT SCORE?

WHAT IS THE CREDIT SCORE?

Your credit score can mean the difference between being denied or approved for credits, and between receiving low or high interest rates. A good score can help you qualify for a rental apartment, and even help you get connected utilities without paying deposit.

Your credit score is a three-digit number generated by a mathematical algorithm using the information in your report or credit report. The credit score is designed to predict the risk, specifically, the probability that you will be delinquent in your credit obligations within 24 months after your score.

There are a multitude of credit scoring models in existence, but there is one that dominates the market: the FICO credit score. According to myFICO.com, the consumer website of the FICO scoring developer, “90 percent of all financial institutions in the United States use the FICO score in their decision-making process.”

 

HOW IS THE CREDIT SCORE VALUED?

HOW IS THE CREDIT SCORE VALUED?

Most credit scores – including the FICO score and the latest version of VantageScore – operate within the range of 301 to 850. Within this range, there are different categories, from bad to excellent.

  • Excellent Credit: 750+
  • Good Credit: 700-749
  • Normal Credit: 650-699
  • Poor Credit: 600-649
  • Bad credit: below 599

But these ranges are not written in stone. This is because lenders have their own definitions of what a good credit score is. A lender who is trying to approve more borrowers could approve applicants with credit ratings of 680 or higher. Others could be more selective and only approve those with scores of 750 or more. Or both lenders can offer credit to anyone with a score of at least 650, but they usually charge consumers with scores below 700 a higher interest rate.

 

WHAT DO YOU CONSIDER IN THE CREDIT SCORE?

WHAT DO YOU CONSIDER IN THE CREDIT SCORE?

Your credit report data collects five main categories that make up a FICO credit score. The rating model takes some factors more strongly, such as payment history and debt incurred.

  • Payment history: (35 percent) – Payment information for your accounts, including any late payments and public records.
  • Debts: (30 percent) – The amount you owe on your accounts. The amount of available credit you are using in revolving accounts is very much taken into account.
  • Credit history time: (15 percent) – How long have you opened your accounts and how long have you been active?
  • Types of credit used: (10 percent) – The combination of accounts you have, taking into account both revolving and installment payments.
  • New credit: (10 percent) – Your search for new credits, including credit reviews (credit inquiries) and number of recently opened accounts.

Personal or demographic information such as age, race, address, marital status, income, and employment status does not affect your credit score.

Within a scoring model, there is more than one formula used to calculate the score, and each formula is designed for a category of consumers with similar credit profiles. The information contained in your credit report determines which formula is used. If you have a new credit, for example, the scoring model puts you in a category for people with a young credit history, and a specific scoring formula is used for that group. For example, within that group, recent research (credit inquiries) may cost more points than they would for a different group of consumers.

 

HOW TO FIND OUT YOUR CREDIT SCORE?

HOW TO FIND OUT YOUR CREDIT SCORE?

Federal law requires the consumer’s right to access their free credit report once a year from each credit reporting agency, however they are not entitled to their free credit score. To obtain your credit score, you have to buy it from a credit score provider as one of the credit reporting agencies or as Identity IQ that offers you free of charge your FICO credit score from the 3 credit agencies for 7 days.

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