|
The Credit Score Rating Scale Explained
By: JP Burkhart
Many people are unaware of what a credit score actually means. In fact, a survey
of 1,000 Americans taken in September 2004 demonstrated that only one third of
people knew that a credit score was a measurement of how likely a person is to
pay off a loan. Having a good credit score is necessary when it comes to
applying for loans for cars, mortgages, and credit cards. Furthermore, having a
bad credit score can lead to denial of basics such as a phone line in your home.
Therefore, it is important for consumers to understand how a credit scores
affects them and how it is determined in the first place.
Calculating the Credit Score
In essence, a credit score tracks how well a person incurs debt and how good
that person is at paying the bills on time. Businesses, including lending
institutions, look for a high score with potential customers because the higher
a person’s credit score, the more likely that person is to be responsible with
finances and the more that person can be trusted to pay back debts.
A credit score may vary from one credit-reporting agency to the next since they
do not all necessarily receive the same information from businesses. Some
businesses report to all three of the major reporting agencies, while others may
only report to one or two. In addition, the statistical pool used by each agency
may vary slightly, leading to a different credit score. All of the agencies,
however, utilize the same software when it comes to determining credit scores.
Fair Isaac and Company (FICO) develops this software and, therefore, the credit
score is often referred to as the FICO score.
Score Factors
A person’s credit score is not static. It changes all the time. Every time a
bill is paid on time or late it is reflected on the credit score. In addition,
each time a person takes out a new loan or applies for a new credit card, the
credit score changes. This is because the credit score is based on the person’s
financial history and attempts to make a prediction at how responsible the
person will be in the future.
The final score is highly objective and based on statistical data. Points are
gained based on specific factors such as late payments, payment history,
outstanding debt, and the length of time an account has been open. All of this
information is compared to the statistics of people with similar profiles to
determine a final credit score.
About the Author:
JP Burkhart recommends that you visit
http://www.creditscoreguide.net/2006/02/the_credit_scor.html
for more information on credit score rating scale.
|
