What Is A Credit Score Rating?
What is a credit score rating? It is a predictive measurement of an individual borrower's credit stability. This number gives lending institutions a consistent and objective way to evaluate whether or not to extend credit. The credit scoring system evaluates the patterns of hundreds of thousands of past credit reports to identify common variables, such as the probability of a person defaulting on a loan, or becoming over-extended. By identifying consistent variables based on past credit history, the system can then predict future credit behavior.
Elements that determine your credit score
Using a mathematical formula, your credit score takes into consideration your credit history, how you've paid your bills, how much open credit you have, as well as other factors that predict your credit worthiness. The formula then compares your information to the credit performance of other consumers with similar profiles to produce a three-digit number. Lenders use this three-digit number to determine whether or not to lend money, how much money to lend, and what interest rate will be charged.
How many credit scoring systems are there?
Your credit score may be different from lender to lender, depending on the credit scoring system that was used. Credit scoring systems all look at the details in your credit report. However, the systems look at the information slightly differently depending on what the score is being measured for, and where the comparative information is coming from. Below is a brief overview of the four main credit scoring systems.
- FICO: The FICO credit score is provided
by the Fair Isaac Corporation, which was founded in 1956. It is the most widely
used credit scoring system, and is utilized in nearly three quarters of all
mortgage lending decisions. My Fico, where individual can order their own credit
scores, is the consumer division of the Fair Isaac Corporation.
- Beacon Credit
Scoring System: A Beacon score is the Fair Isaac Corporation (FICO) credit score
calculated using information from the Equifax credit bureau, and is marketed
under the name Equifax Score Power.
- Empirica Credit Scoring System: These credit
scores are furnished by the Trans Union credit bureau, and are based on the FICO
model using information from Trans Union credit files. A Free-Trial of TransUnion Credit Monitoring
offers unlimited credit reports and scores for 30 days.
- Experian/Fair Isaac Risk Score: This credit scoring system was developed by the Experian Credit Bureau and is based on the fico model, using Experian information. You can get a free copy of your Experian Credit Score and report when you sign up for a free trial membership with Triple Advantage Credit Monitoring from Experian.
Many major companies use credit scores in conjunction with other factors when
making decisions about extending credit. Now that you understand what a credit
score rating is, we will discuss the different types of businesses that commonly
use credit scores for decision-making.
Who Can Check My Credit Score?
Elements That Determine Your Credit Score
Credit Score Simulator
Raising Your Credit Score
More Credit Score Info
