Credit score facts and how to improve it

Credit Score refers to a number which is calculated on the basis of the statistical analysis of an individual credit report. This credit score of a person reveals his credit habits and thus helps creditors in assessing one’s creditworthiness. In fact, in order to minimize their risk of lending, the creditors buy their prospective borrowers’ credit scores by paying substantial amount to the credit reporting agencies.

Your credit score actually determines whether your loan will be approved or not. Moreover, the creditors fix your credit limit and interest rate on loan on the basis of your score.

Facts you should know about your credit score:

  • Generally, the credit bureaus generate an individual credit score when a creditor places request for that personal credit report. The consumer rating agency supplies the creditor the credit report along with the credit score.
  • Your credit score represents a numerical figure, which keeps changing with the change in your credit activities.
  • Credit scores generated by different credit bureaus can vary as they use different data sources.
  • The actual figure of credit score depends on the credit scoring model, adopted by the particular credit reporting agency.
  • The statistical models that are used for calculating credit score are subject to Federal Reserve Board regulation. Credit bureaus develop the credit scores following the Equal Credit Opportunity Act.
  • Credit scores are also called risk scores, as they help the creditors in predicting the risk associated with approving a loan to a particular person.

Types of Credit Score:

  • The credit Score that is most widely used is FICO Score, named after Fair Isaac Corporation, which designed the particular credit scoring model.
  • The major three credit bureaus of US, namely Equifax, TransUnion and Experian use FICO credit scoring model, but they have given unique names to their scores. The FICO score developed by Equifax is called Beacon score, whereas the FICO score generated by TransUnion is named as Empirica. But, Experian call its credit score simply as Experian score or FICO score.
  • Other than Beacon and Empirica, Equifax and TransUnion also offer other scores like Pinnacle Score and Precision Score.
  • After FICO score, the second popular credit score in USA is Vantage Score. This score was introduced jointly by the three major credit bureaus. In the vantage credit scoring system, grades from A to F are assigned to different score ranges.
  • Another credit score used by some creditors is NextGen Score. It has similarity with traditional FICO score.
  • There are many other alternative credit scores like PRBC Score and Anthem Score.
  • As the non-FICO scores like TransRisk(designed by TransUnion) and ScoreX(designed by Experian)are comparatively less costly than the FICO scores, many creditors tend to use such scores.

How to improve your credit score?

  • When the credit scores are calculated, 35 % weightage is given on the payment history of the consumer. So, in order to achieve a high score, you should pay your bills on time and avoid late payments.
  • The total amount of credit you owe, affects your credit score by 30% weightage. So, it is better for you to keep your credit balances substantially below your available credit limit. You should try to pay off your credit card debt rather than moving it between cards.
  • The length of your credit history can positively influence your credit score by 15% weightage. So, if you are required to close any of your existing credit accounts, choose a newer one and try to maintain the old accounts.
  • At the time of calculating credit score, 10% weightage is attached to the types of credit that the consumer is holding. Having a mixed credit profile may help you in gaining higher credit score. But, it�s not right to open new accounts only to have a better credit profile. You should apply for new credit accounts only when you genuinely require those.
  • Your recent search for loans can affect your credit score by 10% weightage. Credit scoring model points out whether you are applying for a single loan or for different credit lines. So, if you need to take a new loan, it is better for you to complete your rate shopping within a period of 30 days.

Useful Resources:

  • How To Raise My Credit Score – Learn how to raise your credit score by 135 and delete numerous record with this simple, step-by-stemp guide. Get it and repair your credit now!