Credit report scores
Credit report scores are the scores that are contained in the credit report of a person and are used by various types of financial institutions for making decisions. In U.S, United Kingdom, Canada and many other countries, when a person applies for any type of credit facility like car finance, credit card or mortgage loan, his credit scores are taken into consideration for making decision regarding interest rate and other terms and conditions. In fact, on the basis of these credit report scores, lender also deny loan to the applicants. Credit report scores are also known as FICO scores and are maintained and provided by the specialized organizations called as credit bureaus.
Three credit bureaus in United States which provide credit report scores are Trans Union, Experian and Equifax. Credit report scores offered by these bureaus are based upon the information provided to the credit bureaus by different types of sources like lending institutions. Whenever there is any change in this information, credit report scores also get changed. If a person has been denied credit facility by lending institutions, he has to improve his credit report scores by different ways.
For calculation of credit report scores, it is necessary that each of three credit reports of a person has any one account that has been opened for 6 months at least. Similarly, each of these reports has to contain one account at least that has been updated in last 6 months. Thus, for providing credit report scores, it is must that credit bureaus have essential and adequate information with them.
Credit report scores are also known as FICO scores due to the fact that these scores are produced by software that has been developed by Fair Isaac and Company. These scores are then provided by various credit reporting agencies to lenders for taking required decisions. It is said that best guide for any lender to forecast risk and take right decisions is FICO score. Higher credit report scores provided in the credit report means a person is less likely to default with respect to different types of credit facilities. However, there are no credit report scores that can infer if an individual is a bad or a good customer. Also, credit report scores are used by lenders for purpose of guidance and they are free to take any type of decision on the basis of credit report scores. If national distribution of credit report scores in United States is seen, it is inferred that about 12% people have scores from 600-649. About 8% of population is having credit score between 550 and 599.
Credit report scores have been known by other names also, apart from FICO scores. These names depend upon credit reporting agencies. For example, credit report scores communicated by Equifax are called as BEACON scores while those provided by Experian are called as Fair Isaac Risk Model or Experian. Credit report scores offered by Trans Union are called as Empirica.
What is contained in credit scores
Many people are curious to know what is contained in their credit report scores. Let us discuss this. Credit report scores are calculated from various types of credit data contained in the credit report. This data is categorized into five main categories. These are payment history, length of credit history, amounts owed, new credit and types of credit used. Payment history has 35% say in credit report scores, amounts owed has 30% say, length of past credit history has 15% say, new credit and types of credit used has 10% each say in determining the credit report scores. Payment history include account payment information with respect to different types of credit accounts like loans, credit cards, finance company accounts etc; amount past due, severity of delinquency, etc.
Amount owed includes amount owing on various types of accounts, number of accounts that have balances, lack of any specific type of balance etc. Length of credit history include time since the accounts were opened, time since account severity, etc. New credit includes number of latest credit inquiries, time since credit inquiry, numbers of recently opened accounts and re-establishment of positive accounts. Types of credit include numbers of different types of accounts used like retail accounts, mortgage accounts, installment loans etc. Credit report scores are calculated on the basis of all such categories. However, there are certain types of information that are not considered for the calculation of credit report scores. These are color, sex, race, national origin and marital status of a person, age of a person, salary, occupation, title, area of living, employment history etc; items like child support etc.
Other aspects
There are some other aspects of credit report scores that have to be understood. First of all, credit report scores are not the only scores one on basis of which lenders take decision. It has been noticed that most of lending institutions have evolved their own scoring model that provides them with credit scores, though these models also use credit report scores. Second important aspect that must be understood here is that there are other types of credit bureau scores also that can be used apart from credit report scores. Other credit bureau scores may see the credit report of a person in different manner and in some cases, higher scores may mean high risk. Third aspect is that these scores may vary among credit reports provided by three main credit bureaus. If information provided or gathered by the credit bureaus is different, credit report score shall definitely differ. Last but not the least, credit report scores are not the fixed scores. They change from time to time and thus, a person should check his scores for ensuring that lenders are using right ones.
Under the new federal laws in U.S, a person has got right to get one free copy of credit report in a year from each of three credit bureaus. For this purpose, he can log on to annualcreditreport.com.
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