Your credit report score is generated by a mathematical algorithm which is based on the information on your credit report. This information is gathered on many people. The compiled credit score is a gauge of how well you will be able to pay your bills. You will be approved for credit within minutes if the credit score is good.
Creditors may use several credit score models to assess if you are creditworthy. These models will have varying scores. Creditors use some scoring models more than the others. The FICO (Fair Isaac Corporation) score is quite common.
Understanding the Credit Report Score
The credit score scale ranges from 300 to 850. Many people will have credit report scores ranging between 600 and 800. A score of 720 or higher will get you good interest rates on a mortgage. Each of the three major credit bureaus uses its own version of the FICO scoring method. The major credit bureaus are Equifax, Experian and TransUnion. Equifax has the Beacon Score. Experian has the Experian Score or Fair Isaac Risk Model. TransUnion has the Empirica Score.
Understanding your credit report score is a crucial initial step in running your finances successfully. Large credit institutions such as mortgage companies and banks take a big risk when they give you loans for buying your home, financing your car or paying for your higher education. These creditors like to minimize their risk by assessing your credit history before giving you the loans. If you had a bad credit history, then the creditor may hesitate when giving you a loan or may end up charging you a very high rate of interest.
You will have a credit history when you own a credit card or have applied for a loan earlier. Your credit history is put together by credit bureaus. They collect your credit history from credit card companies, banks, mortgage companies and other creditors. They create a credit report. The information here is then used to compile a three digit credit score. Each time you apply for new credit, the credit card company or the bank calls on one or more of these credit bureaus to check on your credit report score. Based on this credit report score and your credit history, the creditors will be able to decide on giving you a loan.
Credit Reporting Agencies and Credit Report Score
The three versions of the credit report score can come up with varying results as they use different algorithms. The variations can also be due to the difference in the information contained in these reports. Whatever scoring model is used by the lenders, it is better for you to have a good credit report score. This score will have an impact on whether you will get credit or not and the kind of interest rate you may get. A higher credit score will get you a low rate of interest.
Credit bureaus or credit reporting agencies are big institutions. A negative entry on your credit report score can damage your power of borrowing for a long time. The credit report score is also requested by your landlord, insurance companies and employers. It is therefore important to ensure that the information on your credit report score is accurate. It has been noted that twenty five per cent of a credit report score may have errors such as wrongfully mentioned delinquent debts or closed accounts shown as open. It may also reflect debts belonging to other people bearing similar names.
Information collected on a Credit Report Score
Computer databases can mess up your credit report score. It is a known fact that one out of four credit reports are incorrect. Many people do not take any action on errors. The important thing to know is that a credit report score is a simple three digit number based on information that may or may not be correct. It can damage you financially.
For many years, credit bureaus kept the information on a credit report score hidden from a consumer. People were not able to get an idea as to why credit was denied to them or whether their credit report score had errors. The Fair Credit Reporting Act of 1971 changed that and it legislated that the citizens can have free access to the credit report score from each of the three national credit reporting agencies of Experian, Equifax and TransUnion. Today, the citizens also have the right to know why they are being denied credit. It is important to track a credit report score that may have errors on it as these errors can affect your loan taking ability dramatically or they may bring about high rates of interest. This is the reason why your credit report score can make the difference between living well and struggling to settle your debts.