Credit ScoringModern credit reports are a plus for both creditors and consumers. But just how do the credit bureaus decide what goes into credit scoring? What factors are more important than others?
What is a Credit Score?
Creditors look at your credit score to determine what type of financial risk you are to them. Most lenders use the Fair Issac and Company (FICO) scores as a basis for their checks. Fair Isaac takes the information that is gathered by the credit bureaus and converts it into your FICO score.
Faster & Fairer
Although your credit score is not the only factor a creditor uses in deciding how to help you, it is one of the quickest ways to get a basis from which to work. The creditor can have your credit scores within minutes or hours and then have an idea of what your financial situation is.
It is also a much fairer way of determining your credit risk. Old credit problems fade out, and if you are doing better in your financial habits that is reflected in your credit score.
How is the Scoring Figured?
Credit scores are based on mathematical equations based not only on your credit history but on that of thousands of other consumers’ reports as well. Many things come into play when computing your scores. Paying your bills on time, for example, plays a big part of the scoring, approximately 35 percent. Money owed, late payments, judgments, and how much you are already owe all play a role. Scores run between 300 to 850, and the higher your score the better terms you will receive on your loan. Creditors do not look only at your scoring but it does play a very important role.
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