The first rule in understanding your credit score is that no one has just a single score. The FICO scoring model is used by most lenders use to determine your risk. But, most lending institutions and banks modify the existing scoring models with their own proprietary algorithms.
To make matters harder to decipher, they tend to be not be very forthcoming about the specific scoring information that they use. So at any time you may feel like Bank A views you as credit worthy but Bank B, due to a different metric, may see you are a big risk and not financially fit.
What metrics are used for calculating my credit score?
As we mentioned previously, there are many consumer based scoring models, but we only want to focus on your FICO scores from TransUnion, Equifax and Experian.
The FICO score model, is made up with these components:
+ Your Payment History – 35%
+ Outstanding Balances – 30%
+ Age Of Credit Accounts – 15%
+ Recent Credit – 10%
+ Different Types – 10%
With your score in hand, you get a easy to interpret, numerical measuring point.
You can better time when you apply for life’s major financial hurdles and save yourself thousands. With this information, you can enter into any financial arrangement with confidence and the knowledge to gauge if a lender is not offering your favorable terms.
At the very least, you can ask them why there are extending you a less than desired deal based on your numbers.
Consumers often have different reasons for checking their credit scores. But one of the top rated reasons is to know if you can qualify for a good mortgage rate. Other are simply keeping up with the Jones’ and want to see how they measure up.
Regardless of your particular motivation, you can’t get too caught up in an exact number of forget that getting access to your online scores is only the first step. You also need to run your annual credit report each year (https://www.annualcreditreport.com/) and stay on top of any changes before they do damage.
The key is not the actual number but what category it qualifies you for: excellent, good, average or poor. If your category is not above the average mark, you would be well advised to trying to move up your ranking before applying for any type of loan.
The difference of 10 points can have a major impact on your bottom line when it comes to qualifying for a lower mortgage interest rate.
With that said, to run a credit check on yourself, all you need to do is complete our quick access application and let our system do the rest. We’ll pull your scores from each of the 3 credit bureaus. It’s fast and easy.
Understanding How Your Score Is Calculated
In the beginning the ‘credit scoring number’ was created to be the routine mechanism to assess your financial risk. It was not intended to be calculated more than a few times in a consumers lifetime. However, by the early 1980’s the weight assigned to these numbers went well beyond the original intent by evaluating the odds of making a profit on the ‘client’, setting credit limits and handling loss mitigation.
Now-a-days, smart consumers understand the importance of their credit ratings and how far reaching they are. For those consumers considering a large purchase in the near future, they know the importance periodically reviewing their ratings but at the same time that can prove costly. That is why you find more and more companies offering credit report offers.
Who would have believed how much this one number could predict our financial futures?
Clearly extending credit to consumers is a truly risky business and we all know that the banks will do anything to increase their odds of success and the chance of squeezing out a little more profit. From that point of view, it is easy for us to see how the role and weight of our credit scores evolved. The entire banking industry quickly adopted the standard as the metric to quickly assess the value and risk of a potential customer.