Understanding the Credit Score

Credit scores are numerical value which is used as a basis in determining your credit risk. If your credit score is higher, your risk is lower. Creditors such as lenders and banks use the credit scores as benchmark in assessing your financial responsibility and capacity. The credit scores are not constant. They vary depending which agency is doing the assessment.

How the Credit Score are Calculated

In computing a credit score, data from several factors are analyzed. 35 per cent of the credit score is influenced by a consumer’s payment history. This “payment” factor includes paying your credit card dues, utility bills, mortgages, or automobile bills. If you missed a payment or two, or made late payments, they are accounted for. Public records like fiscal information or delinquencies are considered as well.

Another 30 per cent of the score is attributed to the amount a consumer owes. If you have outstanding debts such as from your credit card or unpaid loans, both are factored in along with the available credit options.

The final 35 per cent of credit scores are calculated as such:

• 15 per cent from how long or short your credit history is.
• 10 per cent from the diversity that a credit is used.
• 10 per cent from the number of times credit inquiries are made and credit applications are submitted.

Knowing What Good Credit Score Is

A credit score is composed of three digits. As mentioned earlier, the scores vary among several credit monitoring agencies. In the United States, the three largest are Equifax, Experian, and TransUnion. Other popular bureaus include FICO and VantageScore.

Among these five credit monitoring bureaus, the lowest a consumer gets for a credit score is 300, while the highest can be 900. It is absurd to make a comparison of the credit score from each agency because the factors used in its computation vary. Hence, it is not easy to determine which credit score is good and which is bad.

The Equifax assesses consumers from the range of between 300 and 850. TransUnion rates a consumer between 400 and 925. Experian’s values are between 340 and 830.

The longest range is of credit scores is from FICO which runs 300 up to 850, and the shortest extent is from VantageScore which is from 501 to 900.

How to Know Your Credit Score

In the United States of America, the three largest credit monitoring agencies are required by the Fair Credit Monitoring Act to issue a free copy of the credit report to all citizens. Each agency issues a credit report every four months. If you want to avail of the free issue of credit reports, you may contact any of the agencies either goingonline, by sending a letter to a P.O. Box address of the agency, or by calling their hotline number.