Credit Scoring Explained
What Is Credit Scoring?
“Credit scoring” is a system creditors use to help determine whether to give you credit and how much to charge you for it.
When you apply for credit the creditor or lender will request your report and score from one of the big three bureaus—Equifax, Experian, or TransUnion—and sometimes (for example, when applying for a mortgage) they will pull reports and scores from all three.
Your “creditworthiness” comes from calculating your credit history against a system called the Fair Isaac Model. Fair Isaac uses a variety of factors to determine your score: your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts.
The final outcome of those calculations is referred to as your FICO® score. FICO scores range from 300 to 850, but the majority of scores fall between the 600s and 700s.
While a FICO score above 700 will get you a very good mortgage rate a score above 720 will get you an even better rate, saving you thousands of dollars.
A score below 700 will make getting a loan very difficult for you and definitely should be improved.
Correcting mistakes on a credit report in order to repair an undesirable credit score takes time and it’s your responsibility to correct mistakes that may appear in your credit report.