As recent as a few years back, the term "Credit Score" was not very commonly used in our society. While there were who understood the term and its although realizing that there was a system out there that their credit, the mass majority, purpose, they did not have a term to stick to it. due to a number of factors such as increase Identity Theft and mass media marketing campaigns there are very few who are not aware of the term Credit Score, however, Today. The goal of this article is to add understanding on the personal to the recognition of that term. A Credit Score is a number between 300 and 850 based on a statistical analysis of an individual's credit activity.
It is used to represent the credit worthiness of an individual. How likely that the individual will pay his or her debts. A credit score is based on their credit report information which is typically sourced from credit bureaus and credit reference agencies, typically from the three major credit bureaus. Lending finance companies, such as banks, institutions, mortgage use an individual, and credit card companies, lenders's Credit Score to evaluate the potential risk posed by lending money to that individual. Lenders use Credit Scores to determine who qualifies for a and what credit limits are determined, at what interest rate the loan is issued, loan.
The use of credit scoring prior to granting credit is a trusted system throughout the industry. Credit scoring is not limited to banks, however. Organizations, such as mobile phone companies and government departments employ the same techniques. While there are many VantageScore and the CE Score, such as NextGen, others, The most widely known score in the United States is FICO, which is most widely used in the mortgage industry. FICO is an acronym for Fair Isaac Corporation, the company that provides the most well-known and most widely used credit scoring system in the United States.
The FICO score is calculated by applying statistical to information in one, developed by Fair Isaac, methods's credit file and is primarily used in the consumer banking and credit industry. FICO scores show how likely it is that a borrower will default. No public information is available to determine what the scores mean in terms of statistics. A separate is used to indicate likelihood of bankruptcy, BNI, score. As stated, banks and other lending institutions use Credit Scores as factors in their lending decisions. Whether credit is denied or what income level and asset verification is required is all based on an individual, what interest is charged, approved's credit score.
The FICO score actually uses slightly different scoring methods to rate a consumer's suitability for three different types of credit. And consumer credit, auto loans, mortgages. Each reflecting the different credit risks of these various types of lending. It is not unusual for these scores to differ by as much 50 points or more for the same borrower. There are three major credit reporting agencies in the United States.
Although often times inaccurately referred to as "credit bureaus", these agencies. Also calculate their own credit scores, Experian and TransUnion, Equifax. These additional scores differ depending on what they are meant to and what information is used and how it is weighted, what statistical methods used to determine a score, predict. These additional Credit Scoring Systems are numerous and are agency specific. For Beacon 0, Beacon, example, Beacon 96, and Pinnacle scores are available only from Equifax.
Precision Score, Empirica Auto 95, Empirica, and Precision 03 are available only from TransUnion. And, Fair Isaac Risk Score at Experian. These various Credit Scores are developed for the different agencies by Fair Isaac, each differs and are periodically updated to reflect current consumer repayment behavior habits. The NextGen Score is a scoring model designed for consumers. In an effort to make credit scoring more consistent across the board, in 2006 the big three credit reporting agencies introduced Vantage Score.
Vantage Score uses a different number range from the FICO score. It ranges from 501 to 990 and also assigns letter grades from A to F to specific ranges of scores. A consumer's Vantage Score may differ from agency to not due to differences in scoring systems, but the difference would be entirely due to differences in the information reported to the various agencies, agency. Since FICO is still widely used by lenders, the agencies continue to offer FICO scores (or their closest equivalent) as well. Most credit scores use a multiple-scorecard design. Each version may use individual scorecards, and an individual potential borrower is typically compared with other previous borrowers.
In other words, a borrower with one 30-day late payment will be scored against a population with some similar delinquency. A borrower with two 30-day late payments will be scored against a population with like credit faults. The individual is then graded according to which variables indicate a risk within that group. Nearly all large banks also build and use their own systems for credit scoring purposes, and are often times in conjunction with outside scoring formulas. The systems used to generate credit scores are subject to federal regulations.
The Federal Reserve Board's Regulation expressly prohibits a credit scoring system from considering any , which implements the Equal Credit Opportunity Act, B"prohibited basis" such as religion, color, race, national or marital status, sex, origin. It also stipulates that credit scoring systems must be "empirically derived" and "statistically sound". In a denial of a credit application, if an adverse action, addition, is taken as a result of the credit score then the specific reasons for the denial must be provided to the individual denied. The statement "credit score not high enough" is insufficient. The reasons for denial must be specific; "too many delinquencies 60 days or greater" and such. Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history.
Although the exact formulas for calculating credit scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each: 35% punctuality of payment in the past (30 Days Past Due) 30% the amount of debt, expressed as the ratio of current revolving debt to total available revolving credit 15% length of credit history 10% types of credit used 10% recent search for credit and/or amount of credit obtained recently These percentages offer a limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept. It consists of multiple factors two being the oldest account open and the average length of time an account has been open. Interestingly, although only 35% is attributed to his score will fall far more than 35, if a consumer is substantially late on numerous accounts, punctuality%. and judgments affect scores substantially, foreclosures, Bankruptcies, but are not included in the very vague pie chart provided by Fair Isaac. A FICO score generally has a max of 850 and a minimum of It exhibits a left-skewed distribution with a median around The performance of the scores is monitored and the scores are periodically aligned so that a lender normally does not need to be concerned about which score card was employed.
Because the three major credit agencies have their each of us actually has three credit scores for any given scoring system, independent databases, own. As these databases are independent of each other, they may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness. As a result of the FACT Act (Fair and Accurate Credit Transactions Act), each legal U. S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every twelve months. To guard against inaccurate information or fraud more often than yearly, one can request a report from a different credit reporting agencies available on the net.
This information is available from a number of websites across the net that offer an free credit report and use of their services for 30 days. After which, there is a monthly fee involved. The fee is nominal compared to the necessity of protecting your credit in today's highly technological society where identity theft is becoming more prevalent. In a time where identity theft and credit fraud in on the rise, the fee these firms charge seems like a small amount to pay to protect your credit and your good name. Having a good Credit Score is becoming more and more prevalent in our society. Here are a few examples of how: In September 2004, TXU (a Texas utility company) announced it would begin setting individualized electricity prices based on credit score. the plan was not implemented, due to negative press and pressure from the Texas Public Utility Commission, However.
Credit scores are often used in determining prices for auto and homeowner insurance. which insurance companies then use to rate the quality of potential customers, some of the agencies that generate credit scores have also been generating more specialized insurance scores, Recently. These scores are unavailable to consumers. Many employers reserve the right to do a credit check of job applicants, in the same manner they reserve the right to drug test potential employees. The fact is that your Credit Score is important. Rebuild-Credit. us is a sight committed to providing consumers with quality information concerning and how to maintain a quality credit score, how to get it, credit. It is recommended you take the time to visit them and read through the numerous articles and reports there.
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