What are credit scores?
A credit score is a single number, based on an analysis of information contained in a credit report, that provides an indication of how likely a person is to repay his or her debts. It is based on several types of information, including payment history, amount of debt owed, and types of credit used. Credit scores, and the credit reports on which they are based, increasingly influence consumer access to credit, housing, insurance, basic utility services, and even employment. The growing use of credit scores has increased the speed with which many credit decisions can be made, the potential for customized pricing of credit, and the overall efficiency of credit granting. However, in consumer lending, inaccurate scores can result in unfair treatment of borrowers who are denied or charged high prices for credit. Errors of Omission and Commission Found The analysis of 51 representative files for consistencies and inconsistencies revealed reasons for these differences in scores. Common errors
A credit score analyzes your credit history by considering the following factors: late payments, the amount of credit established, the length of time at your present residence, employment history, collections, and bankruptcies. A lender will take into account your credit score when qualifying you for a loan. Lenders generally utilize an A- through D (or comparable) credit ranking system. The typical breakdown is as follows: A- MINUS CREDIT: Contains very minor or no credit problems within the last two years, one or two 30-day late payments, and no record of collections. B CREDIT: This is where the majority of credit reports fall. This may include a few late payments within the last 18 months, and up to four 30-day late payments, or up to two 60-day late payments. If the late payment is a single incident, one 90-day late payment is allowed within the last 12 months. C CREDIT: May include several late payments in the 30 to60 day range in the past few years, and any late mortgage payment
Credit scores help lenders predict the likelihood an individual is to repay a new loan as well as determining what interest rate to charge consumers. Information about you and your credit experiences, such as your bill paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your application and your credit report. There are many different computer models that can calculate a credit score. In general, however, the computer model assigns points to information in a credit report. For example, making payments on time every month is positive for the score. Charging the maximum amount available on a credit card is negative. The computer adds the positive and negative points, and the resulting number is a credit score. A low score can prevent you from obtaining credit as well as costing you thousands of dollars in interest charges and other fees. 10. About Mortgages and credit scores Credito
Credit bureau scores (Credit Scores) are produced from software developed by Fair Isaac and Company or similar software. That is why they are sometimes called “FICO scores”. Credit Scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion. These credit reporting agencies often use their own names for their scores as follows: Equifax: BEACON Experian: Experian/Fair Isaac Risk Model TransUnion: EMPIRICA These three Credit 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 Credit Scores to help them make lending decisions, each lender has its 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 ac
