As a Consumer, You Should Understand What Creates Your Credit Score
A mathematical algorithm or formula generates a number, which is your credit score. The information for the formula comes from information from your credit report, which is compared to millions of other people. It sounds like it is really mysterious, with arcane symbols being thrown in the mix, but it really is not. The resulting number actually is highly accurate in predicting whether you are likely to pay your bills.
Actually, in order to predict whether you should be given credit and how much, lenders can use different models for credit scoring. There are some scoring models that are used more than others, with the FICO score being one of the most popular methods.
The FICO scale runs from 300 to 850, and a vast majority of people will have scores that range from 600 to 800. A score of 720 and above will get you the most favorable rates on a mortgage loan, according ผลบอลสด to the Fair Isaac Corporation, which is California-based company and developed the first credit and FICO score.
If you are wondering what the three major credit bureaus use, they have their own versions of the scoring method used by FICO. Equifax uses their BEACON score, TransUnion uses the EMPIRICA score, and Experian uses the Experian/Fair Isaac Risk Model. Since they use different algorithms to determine scores, then a variance in the scores can result. There can also be a variance in the scores because data contained in the credit reports of each company are different.
Fair Isaac Corp. says that just about everything in your credit report goes into creating your score. There are more than 20 factors in five categories that the FICO scoring model takes into account. And approximation of what creates your credit score is how you pay your bills, 35%; the amount of money that you own and how much credit you have available, 30%; length of credit history, 15%; mix of both revolving and installment credit, 10% and any new credit applications, 10%.
Problems arise in credit scoring because it relies on information from your credit report, which is likely to contain errors. Most experts say is essential for you to look at your credit at least once a year, and anywhere from three to six months before you plan to purchase a home.
If you give yourself this time, you can request error correction before the lender pulls your credit score. It is good for consumers to know what goes into creating the credit score, and what the credit score actually is because of the need for accuracy.