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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
Which of the three reporting credit agencies usually carry the greatest likelihood of banks using them?
Posted on: 08th Jun, 2008 10:10 am
There is no certain one that any one financial institution uses, I have had one use experian one time and the next time using transunion, you just never know.

You need to make sure that each of the three have accurate information because you do not know which of the three they will use. If any of the three have the wrong information, you can file a dispute with that particular one and try to get it straightened out. You will need concrete proof to send in to them to provide as proof.

They will contact the other party and get information from them, if you don't send in anything then they will take what they have as proof and it is obviously wrong if it had originally been provided that way. So send in the information with your dispute.
Posted on: 08th Jun, 2008 11:44 am
good points made you guys, I have filed some disputes and got some information updated and other information just remain the same. I am thinking that you are right about sending in the proof instead of taking the easy way out and filing the dispute online with the credit reporting agency.
Posted on: 08th Jun, 2008 12:57 pm
Thats a better way. Sometimes presenting the proof in the begining saves the hassle, time and energy.
Posted on: 12th Jun, 2008 03:01 pm
You will get results much quicker if they have the proof on hand when you file the dispute.
Posted on: 15th Jun, 2008 06:05 am
It is a must that you send in all documentation to the credit reporting agency so that they have the information that they need to make the decision to pull the information off your report.
Posted on: 16th Jun, 2008 08:16 am
I agree with you on this erb, when they have the information in their hands then it is hard for them to deny the dispute, so if you have this information you should send it in to the credit reporting agency along with a detailed letter on what you are disputing.
Posted on: 16th Jun, 2008 08:02 pm
All of this is really important to address with the collection agency right from the beginning, make sure that they put everything in writing and that you maintain these copies because it this whole process may take some time, you may get months into it.

I have a file for the ones that I have dealt with, I keep all copies of everything because I have paid off a bill and then months later a collection agency will come along and say that you owe the bill. If the original creditor did not update your account or they have a lot of staff turnover, you are the only one that has intrest in keeping good records on your account.

Do keep all paperwork and reciepts from the collection agencies, then you will not end up in this situation.
Posted on: 18th Jun, 2008 05:38 am
I do agree wholeheartedly with you on this erb, trying to get all the paperwork in order after the fact will almost be impossible, you will not be able to get the paperwork from the collection agency after the fact.
Posted on: 18th Jun, 2008 07:59 am
After they get their money they want nothing to do with you that is for sure, so make sure that you get everything up front from them.
Posted on: 18th Jun, 2008 03:01 pm
That is what they say, get all the information from the start or they will not communicate with you after they get thier money.
Posted on: 18th Jun, 2008 04:43 pm
I just sent on a letter and forwarded it to the attorney generals office also, we will see what comes out of it. I am hoping to get some result in the mail in writing from them, they did not seem to want to put anything to print, so I did the attorney generals office thinking that it would encourage them to do it. we will see.
Posted on: 19th Jun, 2008 03:47 pm
I think there is so much turn over at these collection agencies that they sometime lose track of the accounts, expecially paid off ones, so you are the the only one who has intrest in keeping everything straightened out, afterall you are the one that gets to pay it again if they don't have their records straightened out.
Posted on: 21st Jun, 2008 05:14 am
True, they probably have high employee turn over, especially if they work on a commission basis, if you do not make your quota, then you are gone. I would think that being nicer would be a way to make your quota, I know I am more apt to work with someone who is respectful to me, instead of someone that is nasty.
Posted on: 30th Jun, 2008 06:48 pm
Well, I would not think that it would be a very enjoyable job, can you imagine going to work everyday, doing a job that you have to call people everyday and get on them about past debt. You would hear all types of stories, from people who do not genuinely feel they owe the debt or those who know they owe it and chose not to pay it. I think that dealing with people who owe debt would be a heart wretching and/or frustrating experience, just a job that I would not want to do. I guess someone has to do it, thank god it is not me.
Posted on: 02nd Jul, 2008 03:05 pm
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