What is a Credit Score? A credit score is a number which is calculated, utilizing some sophisticated statistical algorithms, based on your recent (e.g., last two years or so) payment history, history of managing your credits and behavior of paying your loans, credit cards, store charge cards, bills, obligations, etc. The credit score predicts the likelihood of a person’s debt repayment behavior based on the person’s recent payment history. Credit scoring can help you understand your overall credit rating and help companies better understand how to serve you. Overall benefits of credit scoring have included faster credit approvals, reduction in human error and bias, consistency, and better terms and rates for consumers through reduced costs and losses for lenders. Figure 1: Credit Score Analyzer
Three Major Credit Score Companies in the U.S Equifax, Experian and TransUnion Credit Scores: While lenders may use different scoring models to determine how you score, and each major credit bureau has its own method for calculating credit scores, the scoring models have been fairly well standardized so that a score at one bureau is roughly equivalent to the same score at another, but are not necessarily the same. There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers lines of credit-scoring products, available for purchase on their respective websites. Prices range from “free for a short trial period” to several hundred dollars per year. These three credit bureaus score, on a range from 330-830
What is a FICO Score? None of the above credit reports, however, are particularly relevant in the home-buying process. This is because the nation’s Mortgage lenders rely on a different credit model — the FICO model. FICO is named for the Fair Isaac Corporation. The FICO score analyzes a person's financial history to derive a number showing that person’s credit worthiness. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings.
Today, FICO score is omnipresent to the point that people generically refer to all credit scores as “FICO score”. FICO score range from 300-850 and is derived from the following categories with score break-down as shown below. •
Length of credit history (15%)
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Payment history (35%)
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The Ratio of Total Debts/Total Line of available credits (30%)
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Number of Inquiries (10%) Types of credit (10%)