Preparing Your Credit For A Successful Loan
Your credit score is a snapshot summarizing your credit profile at that exact point in time. It brings together all the other information on your credit, and places you in a particular category of credit-worthiness. Whenever you apply for anything like a mortgage, credit card, insurance, or even a job, the provider will look to your credit score first for an indication of how you compare with other applicants. Final decisions, rates, and other terms are all based heavily upon where your score is in the spectrum.
How is my credit score calculated?
Credit scoring models are complex algorithms developed primarily by the Fair, Isaac Corporation. Fair, Isaac has been working on these models since the 1960’s, and is the namesake for the commonly referenced “FICO” score. The software models are built based on intensive statistical analysis of large samples of the U.S. consumer population.Consumer behavior and responsibility are compared to past reported history, to determine which factors are the most accurate indicators of future credit use. These factors are then weighted appropriately in calculating the overall score. Only information reported on your credit report affects the score; if it does not appear on your report, it isn’t considered. Each credit score is unique to a particular report; because the information on your credit reports changes frequently; your scores also change frequently.
Are there different types of scores?
Yes. There are actually many different types of scores, but they are all based on the same information. Over time, the scoring models have become more accurate and more complex, expanded to include the increasing amount of information on credit reports. Many different software models exist, each placing slightly different weights on the credit information. Additionally, many different models exist for different uses: scores pulled for loans differ somewhat from scores pulled by mortgage lenders, auto dealers or insurance underwriters. In this case, past payment history on an auto loan is more important to the auto dealer than the mortgage lender, and so is weighted more heavily in the credit score.
Why are my scores different?
Because the information reported by the different credit bureaus is most often different to some degree, and because they all use slightly different models, the scores calculated will be somewhat different. Score differences of more than 100 points are not uncommon.