The credit score is the most critical factors in the financial life. It determines when people will be approved for line of credit or loan. The credit score is mathematically calculated number designed by Fair Isaac Corporation- FICO. It will be used by the lenders in order to rate the potential customer in deciding likelihood which the customer may pay their bills on correct time. Understanding credit scores is important because the credit score will be determined by utilizing 5 major criteria as defined by FICO.
Understanding credit scores and factors which go into deciding the credit report score is an initial step to protect the financial health. Bad credit score may cost thousands of dollars in borrowing the expenses, fees and can cause people to get turned down for loan or credit card. The payment history denotes the history of how people paid their bills either on correct time or late but it does not show when the bills are paid. The amounts owned denotes total amount of credit people have. When the balance is equal to the credit limit, then it may sometimes lower the credit score.
The history length may indicate how long people have had credit. When the credit history is two years or less than that, it will lower the credit score. The new credit will denote how many times people applied for new credit. When individuals open more than two new accounts in a short time, then this will lower the credit score. Today, many people face difficulty in understanding credit scores. The kind of credit used denotes the kinds of accounts people have like installment or revolving accounts. Revolving accounts are normally installment accounts or credit cards which are usually for auto loans, mortgages, etc.
FICO credit score vary from 300 to 800 with 850 as an excellent score and 300 will be the worst case. When the credit score is higher, then people get lower interest rate. Understanding credit scores will save hundreds of dollars in interest over the life of loan. Good credit score ranges in 660-749 and it may vary from one lender to another. There are three main credit bureaus like Equifax, Experian and TransUnion. Equifax uses Beacon credit score, TransUnion uses Empirica score and Experian score Plus score or Fair Isaac.
Understanding credit scores will integrate own version of the customer’s FICO score. Equifax Beacon score will range from 340 to 820. Plus score or Fair Isaac will vary from 330 to 830. TransUnion Empirica score will range from 150 to 934. The credit score will vary from every bureau because the agency collects own data from numerous sources and can collect various data for same account.