Calculate Your Credit Score Based On The Credit Scoring Models |
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Your credit report score plays a vital role when lenders decide whether to extend you credit. According to Fair Isaac Company
, over 75 percent of mortgage lenders and over 90 percent of credit card lenders use your credit report score when making their lending decisions. A low credit score may result in a denial of credit. Furthermore, lenders will charge higher interest rates on loans to individuals with lower credit report score. This practice is known as risk-based pricing. In addition, your credit report score is used in decisions beyond lending matters. Employers, utility service providers, among many others, use your credit report score to evaluate whether to offer their services to individuals, and uses for the credit report score continue to expand. Perhaps the most troublesome recent use of the credit report score is by insurance companies to establish rates. In short, the decisions relating to whether you receive even the most basic services comes down to this single number. Credit scoring models compute your credit report score primary from information contained in your credit report. The models might also take information from credit applications into consideration, including your occupation, length of employment, and whether you own a home. According to Fair Isaac, payment history accounts for about 35% of your credit report score. Your payment history reflects the various accounts that you have, including credit cards, mortgage loans, and retail accounts. Collections, foreclosures, lawsuits, and other collection items also fall into this factor. The amount of money that you owe approximately accounts for 30% of your credit report score. The manner in which a credit report score reflects this amount, however, is complicated. As Fair Isaac explains, "Part of the science of scoring is determining how much is too much for a given credit profile." The credit report score takes into account your last reported balance, whether or not you pay the balance off in full. The credit report score pays particular attention to the amount you owe in revolving credit such as credit cards. For example, if you have several credit cards with a small balance that you pay off regularly, then this reflects better on your credit report score than if you had the same number credit cards with no balance, because the latter shows a greater likelihood of maxing out those cards. In the same vein, if you have too many credit cards it will reflect poorly on your credit report. 10% of your credit report score falls under a category that Fair Isaac categorizes as new credit. This category reflects factors such as the number of new credit accounts on your credit report. The more new accounts you have open, the more poorly this reflects on your credit report score. In addition, the number credit checks that are run on you in the past year can actually reduce your credit report score. This assumption is that, if you are searching for more credit, then you are a greater credit risk. 15% of your credit report score measures the length of your credit history under Fair Isaac's system. Finally, approximately 10% of your credit report score evaluates the type of credit you have and whether it is a healthy mix. These factors are just a few among many, and your credit report score is determined by a complex formula that takes into account over 100 different factors. While different lenders may evaluate your credit report score differently, generally, a credit report score above 680 is considered to be prime. Individuals with credit report score between 680-575 are likely to receive sub-prime loans, and individuals with credit report score below 540 will generally be denied credit altogether. If the individual is listed as having filed for bankruptcy, it results in a 160-220 point deduction on their credit report score. A bankruptcy will remain on a credit report score for 7-10 years. If a delinquent account is added to the individuals credit file, 70-120 points are subtracted. Analyzing statistics and picking out characteristics that are believed to relate to creditworthiness develop credit-scoring models. Credit Reporting Agencies (CRA) use different scoring models for different purposes. So, find out a best credit-scoring model for good evaluation of your credit report score!!! |
