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Credit Scores - What are the types and why do they vary?

Posted on: 08th Apr, 2004 11:30 pm
A credit score is a 3 digit number that tells a creditor how creditworthy you are and how likely it is that you'll repay the credit once it is extended to you. These scores affect the interest rates you receive on mortgages, auto loans, credit cards, etc. In addition, when you go for an insurance policy or apply for a job, the insurer or employer may look at your credit scores. Even when you're looking to rent, your landlord would prefer it if you have a good credit/FICO score.

What is FICO score?

A FICO score is calculated on the basis of the FICO Scoring Model developed by the Fair Isaac Corporation. In most cases, when people talk about their credit scores, their FICO credit score is what they mean. Consumers can access different versions of the FICO score at the 2 bureaus - Equifax and TransUnion. These scores are known as the Beacon score and Empirica score.

Consumer FICO scores calculated by Experian are sold to lenders only and consumers can't access them. However, consumers can find their credit scores (based on Experian data) online at Experian. They can even request a free credit report from Experian, just like from other bureaus.

What is a good credit score?

Usually FICO credit scores range from 300 to 850. The higher your score is, the lower the risk to the creditor is when offering you a loan. A FICO score equal to or above 700 is considered a good credit score which will qualify you for some of the best deals at affordable rates.

What is a credit score chart?

A score chart helps you get an idea of credit score ratings based on the credit scores you have. The credit score chart is given below:
  • 730+ - Excellent
  • 700 - 729 - Good
  • 670 - 699 - Needs a closer look
  • 585 - 699 - Higher risk
  • Below 585 - Limited credit history

Can you get a free credit score?

Under the Fair Credit Reporting Act (FCRA), anyone is entitled to a free copy of their credit report once a year from each of the bureaus; but free credit scores are not available. You'll have to place an order with the bureaus and pay a fee (set by the Federal Trade Commission) if you'd like to get your credit score. You may apply for your credit scores online at www.annualcreditreport.com or contact them at their toll free number 877-322-8228.

What is the Credit Scoring system?

It's a system where the credit bureaus figure out your scores based on the information that is available from your credit report. The bureaus use a statistical program to compare the loan repayment history of consumers with similar profiles. Then they award points for each item that helps find the consumers who can easily pay down a debt. The total number of points adds up to your credit score.

Why do credit scores or FICO scores vary?

The major credit bureaus - Equifax, and Trans Union follow the FICO scoring model (developed by Fair Issac Corporation) to calculate a FICO score. But scores differ because they use minor variations in the FICO Scoring Model as well as assign different points to each item on your credit report.

Not all lenders/creditors and collection agencies will report your credit information to the same credit bureau. Therefore, the credit score you get from one bureau may differ from what you receive from another. In addition, your credit scores changes from time to time based on your credit transactions. So, make sure that your creditors update the bureaus with your latest credit details.

Do credit score ratings differ?

Credit ratings may vary from one lender/creditor to another depending upon the items (such as late payments on revolving accounts, mortgages, credit card balances,) they consider after reviewing your credit report. For instance, an auto loan provider may leave out an item that a mortgage lender would consider while providing credit score ratings.

Is Mortgage Credit score similar to the regular score?

Mortgage lenders consider the median score - the one that comes in between the maximum and minimum scores you receive from the bureaus. But often lenders may not use the median score in order to evaluate your creditworthiness because the credit report you pull from the bureau is based on the Consumer Model, where your lender may prefer to calculate the score using a different scoring system - the Mortgage Model.

The information used for both Models may be the same but the importance given to each tradeline account may vary. The Mortgage Model gives more emphasis to the tradelines that can affect your mortgage loan. Thus, your chances of getting a mortgage at a favorable interest rate may depend more upon your mortgage credit scores instead of your regular score.

Are there alternatives to FICO scores?

Apart from the FICO Scores, there are Alternative scores developed for consumers with poor credit. The Alternative scores are based on your payment history, outstanding loan balances, the type of credit accounts you have, and other factors.

As lenders pull your credit report from different bureaus, every lender will probably show different scores. Therefore, you won't get the same offers from different lenders. To avoid these discrepancies, the Vantage score has been introduced. A Vantage score ranges from 501 to 990 and is calculated the same way by each bureau thus giving you the same credit score, provided similar information is reported to each bureau

With the increase in the number of consumers who find themselves delinquent on their bills, lending standards have gotten tighter. Therefore, qualifying for a loan has become harder, especially if you don't have a good credit report or score. Especially when it comes to getting a mortgage, even those that are not supposed to be score driven require you to have a minimum 580 credit score. So, it's important to protect your credit standing and maintain a good score.

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Related Discussions
are scores treated the same for all mortgages and loans?
Posted on: 03rd Sep, 2005 02:06 am
Hi Mar tin.J
Welcome to the forums.

There are various loan programs that require different scores to qualify for a given rate and term. A mortgage loan requires a higher fico score than a credit card for the same rate. This is because it includes higher loan amounts and repayment periods.

The score required to qualify for a loan also depends on the nature of the loan. For example, a borrower having low credit point and applying for a 15 year fixed rate mortgage with 25% down payment may get better rate than an individual applying for a 1 year adjustable rate mortgage.

Lenders also consider all risks involved while they ask for a certain range of score to qualify for a particular rate. Those having greater number of risky clients may require you to have high points to qualify for a prime interest rate than lenders with less number of risky clients. Therefore, it is quite possible that for a particular credit score, you can get a prime rate with one lender, but a less suitable rate with another.

Hope you have benefited from this information.

Please feel free to post further queries.

Regards,
Caron.
Posted on: 03rd Sep, 2005 02:52 am
Hi,

Hope I can add some more information.

The resulting score that comes out after analyzing the credit report is compared with that of other consumers with similar profiles and the lenders can thus predict, using this score, about a person's ability to repay.

The most common method to determine score is FICO developed by Fair Isaac and Company along with three other major credit bureaus - Experian, Equifax and TransUnion.

Today everyone can access their credit score at a number of websites including the websites of the three major bureaus and Fair Issac. Your lender can be asked by you for an access to your score too, while you apply for a loan.

James
Posted on: 20th Jan, 2006 03:36 pm
How can I improve my score?
Posted on: 02nd Feb, 2006 03:46 am
Hi,

Please go through the section on credit repair. I hope it will help you with the required information.

Thanks,
Jerry
Posted on: 08th Feb, 2006 09:07 pm
my bankrupcy is almost 9 years. when will it remove from my record? will my credit increase when it is removed?
Posted on: 25th Feb, 2006 08:34 pm
Generally it will take 10yrs to me removed from your report.

Once the 10yr is over, it will be automatically removed from your report.

Basically it wont lay any impact on your report, though it will be good for you.
Posted on: 25th Feb, 2006 09:59 pm
what is the average score in america, because mine is 672 at the moment?
Posted on: 13th Jun, 2006 01:44 pm
Anything above 650 is considered as a good score to grant a mortgage loan. So yours can be considered good although you must be aware that the higher your score the lower will be your rate.
Posted on: 13th Jun, 2006 01:51 pm
Hi ldbeez,

Welcome to MortgageFit Forums.

Each lender maintains their own criteria depending on the loan type in order to approve a borrower.

In general 650 and above is a good score to qualify. Considering all other things meeting the requirement a borrower with points of 650 or higher will have a good chance to obtain quality loans at the best interest rates.

Feel free to ask if you have any more queries.

God bless you.

For MortgageFit,
Samantha
Posted on: 13th Jun, 2006 01:58 pm
How to apply an agency to get my report. Please help me.

Thank you

Uma
Posted on: 30th Jun, 2006 10:30 pm
Hi, Umadevi

Welcome to the forums.

you can apply for the credit report to any of the 3 credit agencies. They will give you the complete report with detail information. You can try http://www.experian.com/

Adonis
Posted on: 30th Jun, 2006 10:56 pm
How much do medical accounts and/or other disputed items affect your score and mortgage loan potential? I read somewhere-forget where-that medical or disputed items do not factor in when deciding a mortgage. Is this true?
My roomie and I are in the process of fixing errors on his CR as well as getting other things paid off and in good standing etc., and as we qualify ( I am disabled and we meet the income criteria) for WA state bond program help with down payment and closing costs, does that also affect the process in regards to risk?
Posted on: 03rd Apr, 2007 12:49 pm
"How much do medical accounts and/or other disputed items affect your score and mortgage loan potential?"
Outstanding medical bills can affect your credit score but disputing any account information does not affect your score.
Posted on: 03rd Apr, 2007 02:30 pm
Hi Kwaker,

Welcome to the forum.

Medical accounts will not directly affect your getting a mortgage. Instead, it will affect your credit score negatively thereby bringing it down.

If there is a medical bill that has gone for collection, this will affect your payment history and hence have an adverse influence on your score. Or else, if you have made any late payment on medical bills or still have to pay for some of the bills, your score is likely to go down.

Thanks,
James.
Posted on: 03rd Apr, 2007 09:56 pm
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