How Do I Interpret My Credit Score?
Your credit score is a 3 digit number based on the credit bureaus records about your credit history.
The credit score is based on five different aspects of your recent credit history and current use of credit granted to you by lenders.
The three major credit bureaus loosely base your credit score on a scoring method based on risk, developed by the Fair Issac Corporation (FICO).
The answer to "how do I interpret my credit score?" is not a simple answer.
Your credit score can be between 300 and 900, the higher the better.
Due to the recent credit and financial upheaval, lenders are requiring much higher credit scores than previously for a reasonable interest rate.
Before the trouble started, a score of 620 put you in the ballpark for being granted credit, with a small interest rate bump.
If the going prime rate was 8%, you might be offered 8.
5 or even 9%.
At 680 you would be offered 8%, and with a credit score of 700, you might get an even better deal.
Now, most lenders have tightened their credit policies and many require a 720 or even 740 to get the best interest rate.
Depending on the type of loan, other factors may come into play after your credit score ranking.
Each lender may have additional requirements, like how much of a down payment, what the term of the loan may be, or even additional collateral against the loan.
But to properly interpret your credit score, you first need to understand how the credit bureaus and the lenders determine your score.
It's a two step process, the bureaus compile your recent credit history to create your credit report.
Then the information in the credit report is used to arrive at your credit score.
Interpretation by the credit bureaus of your credit report is proprietary and they do not reveal their exact methods.
Some lenders may also apply their set of values to items on your credit report, which can impact the interest rate offered.
Keep in mind that the credit bureaus are businesses and sell these credit reports and credit scores to lenders.
There is fierce competition in both the quality and price of providing these reports to lenders.
Even though most credit scores are based on the FICO method, each bureau has their own name for the credit report.
The catch 22 on any credit report and credit score is that each of the three major credit bureaus have different methods of scoring credit history, and even have different information on what they score.
The three major bureaus are Experian, Equifax, and Trans Union.
There are no common rules except that all three base the scoring on the FICO method, but also add their own variations.
The credit bureaus have also developed a credit scoring method called the VantageScore, this is a more in depth look at credit history.
Many see the VantageScore more as a new product developed to increase revenue, not replace the basic FICO scores.
How do the credit bureaus get different information? As an example, one creditor or lender may report to one bureau and not the other two.
Each bureau may have different information, right or wrong, on your credit history.
It's up to you to insure that the information at each bureau is correct.
When a lender or potential creditor requests a credit report, they may use one or all three of the bureaus.
Here is a guide to the factors used in determining your credit score.
These are averages and may differ slightly at each credit bureau.
The factor weight is listed first, then the factor.
· 35% - Payment History (if you pay on time) · 30% - Debt to Credit Ratio (how much of your credit is used) · 15% - Length of Credit History (how long they have records) · 10% - New Credit (how new is credit) · 10% - Types of Credit (installment, loans, mortgages) The two areas with the most impact are your payment history and the amount of possible credit you currently have committed.
The new credit and length of credit can also combine to have a good sized impact on your score.
So if you want to interpret your credit score, you need to review your credit report and determine what information might be affecting your score.
It should be easy to see where you may need to make an effort to improve.
The information may be incorrect, or mistakenly listed under your name when it was someone else.
Understanding your credit report is the first step in understanding your credit score.
You can then address these areas to help improve or raise your current credit score.
Which will save you money when ever you apply for credit.
The credit score is based on five different aspects of your recent credit history and current use of credit granted to you by lenders.
The three major credit bureaus loosely base your credit score on a scoring method based on risk, developed by the Fair Issac Corporation (FICO).
The answer to "how do I interpret my credit score?" is not a simple answer.
Your credit score can be between 300 and 900, the higher the better.
Due to the recent credit and financial upheaval, lenders are requiring much higher credit scores than previously for a reasonable interest rate.
Before the trouble started, a score of 620 put you in the ballpark for being granted credit, with a small interest rate bump.
If the going prime rate was 8%, you might be offered 8.
5 or even 9%.
At 680 you would be offered 8%, and with a credit score of 700, you might get an even better deal.
Now, most lenders have tightened their credit policies and many require a 720 or even 740 to get the best interest rate.
Depending on the type of loan, other factors may come into play after your credit score ranking.
Each lender may have additional requirements, like how much of a down payment, what the term of the loan may be, or even additional collateral against the loan.
But to properly interpret your credit score, you first need to understand how the credit bureaus and the lenders determine your score.
It's a two step process, the bureaus compile your recent credit history to create your credit report.
Then the information in the credit report is used to arrive at your credit score.
Interpretation by the credit bureaus of your credit report is proprietary and they do not reveal their exact methods.
Some lenders may also apply their set of values to items on your credit report, which can impact the interest rate offered.
Keep in mind that the credit bureaus are businesses and sell these credit reports and credit scores to lenders.
There is fierce competition in both the quality and price of providing these reports to lenders.
Even though most credit scores are based on the FICO method, each bureau has their own name for the credit report.
The catch 22 on any credit report and credit score is that each of the three major credit bureaus have different methods of scoring credit history, and even have different information on what they score.
The three major bureaus are Experian, Equifax, and Trans Union.
There are no common rules except that all three base the scoring on the FICO method, but also add their own variations.
The credit bureaus have also developed a credit scoring method called the VantageScore, this is a more in depth look at credit history.
Many see the VantageScore more as a new product developed to increase revenue, not replace the basic FICO scores.
How do the credit bureaus get different information? As an example, one creditor or lender may report to one bureau and not the other two.
Each bureau may have different information, right or wrong, on your credit history.
It's up to you to insure that the information at each bureau is correct.
When a lender or potential creditor requests a credit report, they may use one or all three of the bureaus.
Here is a guide to the factors used in determining your credit score.
These are averages and may differ slightly at each credit bureau.
The factor weight is listed first, then the factor.
· 35% - Payment History (if you pay on time) · 30% - Debt to Credit Ratio (how much of your credit is used) · 15% - Length of Credit History (how long they have records) · 10% - New Credit (how new is credit) · 10% - Types of Credit (installment, loans, mortgages) The two areas with the most impact are your payment history and the amount of possible credit you currently have committed.
The new credit and length of credit can also combine to have a good sized impact on your score.
So if you want to interpret your credit score, you need to review your credit report and determine what information might be affecting your score.
It should be easy to see where you may need to make an effort to improve.
The information may be incorrect, or mistakenly listed under your name when it was someone else.
Understanding your credit report is the first step in understanding your credit score.
You can then address these areas to help improve or raise your current credit score.
Which will save you money when ever you apply for credit.