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Along with the credit report, lenders
can also buy a credit score based on the information in the
report. That score is calculated by a mathematical equation
that evaluates many types of information that are on your
credit report at that agency. By comparing this information
to the patterns in hundreds of thousands of past credit
reports, the score identifies your level of future credit
risk. In order for a FICO® score to be calculated on
your credit report, the report must contain at least one
account which has been open for six months or greater. In
addition, the report must contain at least one account that
has been updated in the past six months. This ensures that
there is enough information — and enough recent
information — in your report on which to base a score.
About FICO scores
Credit bureau scores are often called "FICO scores"
because most credit bureau scores used in the US are
produced from software developed by Fair, Isaac and Company
(FICO). FICO scores are provided to lenders by the three
major credit reporting agencies: Equifax, Experian, and
TransUnion. FICO scores provide the best guide to future
risk based solely on credit report data. The higher the
score, the lower the risk. But no score says whether a
specific individual will be a “good” or “bad”
customer. And while many lenders use FICO scores to help
them make lending decisions, each lender has it own
strategy, including the level of risk it finds acceptable
for a given credit product. There is no single “cutoff
score" used by all lenders and there are many
additional factors that lenders use to determine your actual
interest rates.
More than one score
In general, when people talk about "your score,"
they're talking about your current FICO score. However,
there is no one score used to make decisions about you. This
is true because:
(1) Credit bureau scores are not the only scores used.
Many lenders use their own scores, which often will include
the FICO score as well as other information about you.
(2) FICO scores are not the only credit bureau scores.
There are other credit bureau scores, although FICO scores
are by far the most commonly used. Other credit bureau
scores may evaluate your credit report differently than FICO
scores, and in some cases a higher score may mean more risk,
not less risk as with FICO scores.
(3) Your score may be different at each of the three
main credit reporting agencies. The FICO score from each
credit reporting agency considers only the data in your
credit report at that agency. If your current scores from
the three credit reporting agencies are different, it's
probably because the information those agencies have on you
differs.
(4) Your FICO score changes over time. As your data
changes at the credit reporting agency, so will any new
score based on your credit report. So your FICO score from a
month ago is probably not the same score a lender would get
from the credit reporting agency today.
Interpreting Credit Scores
When a lender receives your Fair, Isaac credit bureau risk
score, up to four "score reason codes" are also
delivered. These explain the top reasons why your score was
not higher. If the lender rejects your request for credit,
and your FICO® score was part of the reason, these score
reasons can help the lender tell you why your score wasn't
higher.
These score reasons are more useful than the score itself
in helping you determine whether your credit report might
contain errors, and how you might improve your score over
time. However, if you already have a high score (for
example, in the mid-700s or higher) some of the reasons may
not be very helpful, as they may be marginal factors related
to the last three categories described previously (length of
credit history, new credit and types of credit in use).
Common score reasons
Here are the top 10 most frequently given score reasons.
Note that the specific wording given by your lender may be
different from this.
- Serious delinquency.
- Serious delinquency, and public record or collection
filed.
- Derogatory public record or collection filed.
- Time since delinquency is too recent or unknown.
- Level of delinquency on accounts.
- Number of accounts with delinquency.
- Amount owed on accounts.
- Proportion of balances to credit limits on revolving
accounts is too high.
- Length of time accounts have been established.
- Too many accounts with balances.
Other Names
For FICO® Scores
FICO scores have different names at each of the three
credit reporting agencies. All of these scores, however, are
developed using the same methods by Fair, Isaac, and have
been rigorously tested to ensure they provide the most
accurate picture of credit risk possible using credit report
data. |
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