What Is a Credit Score
What is a credit score? It can mean a lot of things. It could be the defining number that separates a successful loan or a denial in your application or it could also mean an increased or decreased interest rate for a loan. Credit score can also define your success in getting a house, a car, or a random loan or maybe increasing your APR on a savings account. Credit score is a very important tool to understand what it means to improve your financial condition or define your current financial condition. To simply put it: credit score is a number that is generated using an algorithm.
The credit score shows the person if you are or close to being a delinquent in your financial obligations. The reports are based on 24 months worth of information. There are numerous models in determining the credit rating but the most popular and widely used tool is the FICO. In fact, about 90% of the population uses the FICO system as the method of determining the scores of the person. Credit score is a range between 300 to 850 and the highest number is considered as an excellent rating. Having an excellent score means that you have lower risks, financially.
A consumer receives 3 FICO scores one on every credit report that is offered by 3 notable credit report bureaus namely, TransUnion, Equifax and Experian. Sadly, consumers can only access the TransUnion and Equifax since Experian is not anymore part of myFICO since 2009. What is a credit score and what really goes into these numbers? There are 5 important factors that complete a person’s score. First, there is the payment history that comprises a big chunk of the calculation. This data shows all the payment information accessible in the public records as well as your delinquency. If you do not pay on time, you lower your rating. Credit score is also addresses by the amount that you owe lenders. Especially the revolving accounts, these are big considerations in the calculation of the FICO score.
Other factors that determine a credit score would have to be the length of the credit history, the kind of credit that you use and if you have new credit. The factors involved are obviously based on how you use your money and how you manage your financial obligations. Age, race, or location as well as income do not affect a credit score. Though it seems like the FICO scores are standardized, you cannot really say that since deductions are not revealed to the consumers. That means there could still be some subjective factors that could make your score slightly higher or lower.
If you want to know more about what is a credit score, it is important to take the time to get your reports to review them. Now, it is a lot easier to get your reports. You simply have to sign up and soon you will reports from the 3 credit report bureaus.