A credit score is a mathematical formula which produces a three-digit number which reflects an individual’s debt payment history. This credit score is then used by loan institutions of various venues to project what that person’s future payment risk will be. The higher the three-digit score, the better the person’s payment history and the more likely these institutions will grant a loan with a good interest rate.
Who Provides Credit Scores?
Although there are a large number of models by which credit scores can be calculated, FICO is by far the one most used. A full 90% of U.S. financial institutions utilize FICO scoring to determine loan approvals or denials.
Consumers possess three scores provided by FICO which range from 300 to 850, with higher scores reflecting better credit ratings. These scores are, in turn, provided through three major credit bureaus which are TransUnion, Equifax and Experian. By law, each consumer is entitled to a free credit report once every 12 months.
How are Credit Scores Calculated?
There are five major categories from which FICO scores are derived.
- Payment History: This portion accounts for 35% of your FICO score and consists of payment information, public credit records and any delinquencies.
- Amounts Owed: This portion covers active revolving credit accounts and accounts for 30% of the score.
- Length of Credit History: Covers the amount of time since accounts were opened and the period since they have been active. Accounts for 15%.
- Types of Credit: This category considers all installment and revolving accounts you have and accounts for 10% of your score.
- New Credit: Here, all recently open accounts and credit inquiries are scrutinized. This portion also accounts for 10%.
Any information of a personal or demographic nature is not considered in calculating credit scores such as race, age, employment, income, marital status and residence.
Also, not everyone is scored based on the same model. Various formulas are used depending on the information in your credit report. For instance, if you are new to credit, a certain formula will be used to score you within a category of others who also have beginning credit histories. These particular credit groups are labeled scorecards and point calculations will be different compared to other scorecard groups.
Assistance with Raising Your Credit Score
If your credit score happens to be lower than desired, contact us at repair-credit-today.com for information, counseling and help with raising your FICO score. Our expert credit repair specialists will assist you with elevating your credit score to an acceptable and respectable level.