Full Guide on How to Correctly Understand Your Credit Score and Report Rating and Range
Credit Report

Full Guide on How to Correctly Understand Your Credit Score and Report Rating and Range

EPF Last Update: April 4, 2019

It is critical to understand the meaning of credit score before embarking on how it is used. A credit score is a three digit figure that is derived from a mathematical formula. This is done by the help of the information from somebody’s credit report. When one is approved or denied for credit, credit score is the determining factor. Information is taken from somebody’s credit reports, and data analysis is done to enable prediction of the future behavior of the person. This article will explain further on credit scores.

Credit scores are very influential in the determination of credit that is available to customers. They also determine the terms that the lender may use for instance interest rate. It is therefore crucial to know that not all the credit scores that are offered majorly on online avenues are FICO score. FICO is initials standing for Fair Isaac Company. This was the company that handled the software used in calculating the scores. Most of the credit scores that are mainly in use by insurance agencies and lenders in various banks and other financial institutions are produced by VantageScore and also FICO. They do this with the help of the information that is generated from agencies that deal with credit reporting. These agencies include Experian, TransUnion and also Equifax. The FICO scores have been known to be used by many institutions, especially the financial based ones in the United States of America. The FICO scores are mainly generated from the credit reports that belong to the consumer. Their principal aim is to execute correct decision-making process.

You may be tempted to ask which credit score is ideal. First of all, the FICO score is known to range from 300 to 850 scores. It is critical to note that the risk is at its lowest point whenever the score is higher.There are some basic guidelines that are used to determine the creditworthiness of a customer. The credit scores may be from 550-650: Excellent, 450-550: Very good, 350-450 Average. Many lenders use the FICO scores in different ways. This is because different financial institutions have their unique risk level for different credit products. The lenders are usually focusing past the credit scores. This is because the credit scores may not solely work alone in offering the much required indication for decision making. The lenders, therefore, have to go ahead and apply additional measures in determining the customers’ interest rates. FICO scores are the most used types of credit scores in the United States and are uniquely applicable to over 90% of the decisions made that relate to lending.

Another fact about credit scores is that you may have more than one of them. There is very high chance of creating hundreds of unique credit scores by the use of the information that is availed in the credit reports. The first reason behind this is that there is independence of reporting agencies that deal with credit report information. The representation of the credit information may, therefore, be very different from one agency to another. Secondly, unique credit scores may be at disposal at any given time. These various types of credit scores are used in measuring and predicting diverse things. There are those which are used in insurance firms to predict the likelihoods of filing claims by the customers. The credit scores used in the insurance sector is expected to differ significantly with the one that could be used to determine how you would manage to repay certain credit that has been offered. Thirdly, there might be possibility by lenders to customize credit scores to suit their various requirements. This would lead to fluctuations in the FICO scores from different lenders.

Credit scores are also known to change from time to time. This is due to the information that may frequently change over time. Many customers are known to update their credit reports hence making the generation of credit scores change. The credit scores that might be generated at the first time of submission of your information are different from the next times’. This is especially if the collection account was also a factor. Secondly, whenever you have a complaint about some factor that might be having a particular impact on the credit scores, that item is eliminated by the people responsible for credit information. By doing this, there would be a significant change in the scores during the next time of calculation.

You also need to know that there are some minimum requirements for a FICO score. These are in line with the credit report that is used in calculating the FICO score. First of all, you have to be a holder of at least one active account that has been operational for a period not less than a half a year. Secondly, you should also be a holder of at least one account that has been reported and registered with the responsible agency, in this case, the credit bureau in a period of previous six months. Finally, your credit report should not bear any name of a deceased person. You may also check your credit scores with your financial institution without any hassle. In case you decide to use Credit.com, your credit score will not be impacted on in any way.You can do this many times as possible without any consequences in place. If the lenders are the ones who you mandate to check on your reports on your behalf whenever you visit your bank or auto dealer, then this may be the only time your scores may be impacted on.

Do you want to check your credit report for free? We recommend Credit Sesame. It’s absolutely free.

This article has therefore expounded on what you needed to know about the credit scores. Credit scores are very instrumental in any decision making process. The lenders, bankers, and insurance agencies put in place the use of credit scores to execute their major tasks. You have also gotten to understand that the credit scores fluctuate from time to time because of reasons including updating of credit information.

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