What's a Good Credit Score?It is important to understand what credit score information provided by FICO or VantageScore means, how it is calculated, and what you can do to improve these numbers. These three-digit numbers are part of what determines whether you will be approved for a loan and how much interest you will be charged. Credit scores are increasingly affected by surprising reasons. Municipalities are now sending overdue traffic ticket fines to collection agencies, which report the debt to the credit bureaus. Some libraries are using collectors for overdue fees on books, DVDs and audiotapes. In some states, cable and cellphone providers are reporting payment histories to credit bureaus, but because of government regulations, this practice is not yet widespread, although it's likely to increase. Meanwhile, credit reporting companies will not reveal their scoring formulas. This makes improving your credit score a vital part of your financial survival. How does a creditor decide whether to lend you money for such things as a new car or a home mortgage? Many creditors use a system called "credit scoring" to determine whether you are a good credit risk. Based on how well you score, a creditor may decide to extend credit to you or turn you down. The following questions and answers may help you understand who gets credit, and why. The most popular credit scoring system is known as FICO (Fair Isaac Corporation), although there are others. You can obtain your FICO score for a fee at www.myfico.com. On March 14, 2006 the three major credit bureaus announced a joint scredit scoring model called VantageScore. The VantageScore uses a scale system that ranges from a low of 501 to a high of 990. This version of a three-digit score approximates the letter-grade system we're all familiar with from school--for example, a score of 901 to 990 would be the equivalent of an A, 801-900 a B, 701 to 800 a C, 601 to 700 a D and 501-600 would be an F. Most mortgage lenders continue to determine the finance rate you qualify for based on your FICO score, although VantageScore is hoping to eventually change that. What is Credit Scoring? Credit scoring is a system used by some creditors to determine whether to give you a loan or credit card. The creditor may examine your past credit history to evaluate how promptly you pay your bills and look at other factors as well, such as the amount of your income, whether you own a home, and how many years you have worked at your job. A credit scoring system awards points for each factor that the creditor considers important. Creditors generally offer credit to those consumers awarded the most points because those points help predict who is most likely to pay back the debt. Why is Credit Scoring Used? In smaller communities, shopkeepers, bankers, and others who extend credit often knew by word of mouth who paid their debts and who did not. As some creditors became larger and as the number of their consumer credit applications grew, these creditors needed to establish more systematic and efficient methods for evaluating which consumers were good credit risks. Credit scoring is one such technique. Although smaller creditors still may rely on informal credit evaluations, many large companies now use formal credit scoring systems. Although no system is perfect, credit scoring systems can be at least as accurate as informal methods for granting credit -- and often are more so -- because they treat all applicants objectively. Credit score information can help you understand what a credit score is, how it is calculated, and what you can do to improve it. It is important to understand how credit scores work because this three-digit number is part of what determines whether you will be approved for a loan and how much interest you will be charged. Since your credit score information is a major consideration when obtaining credit, it helps to understand all the different aspects of credit scores. How does a creditor decide whether to lend you money for such things as a new car or a home mortgage? Many creditors use a system called "credit scoring" to determine whether you are a good credit risk. Based on how well you score, a creditor may decide to extend credit to you or turn you down. The following questions and answers may help you understand who gets credit, and why. The most popular credit scoring system is known as FICO (Fair Isaac Corporation), although there are others. You can obtain your FICO score for a fee at www.myfico.com. On March 14, 2006 the three major credit bureaus announced a joint scredit scoring model called VantageScore. The VantageScore uses a scale system that ranges from a low of 501 to a high of 990. This version of a three-digit score approximates the letter-grade system we're all familiar with from school--for example, a score of 901 to 990 would be the equivalent of an A, 801-900 a B, 701 to 800 a C, 601 to 700 a D and 501-600 would be an F. Most mortgage lenders continue to determine the finance rate you qualify for based on your FICO score, although VantageScore is hoping to eventually change that.
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