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Credit Scores -- FAQ's about Credit Scores |
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| What are credit scores? |
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| Credit score is a sum used by lenders as an indicator of how likely you are to repay your loans. Your credit scores are generated by a mathematical formula utilizing the data from your TransUnion, Equifax or Experian credit reports. Lenders have been using credit scores as part of the lending decision for more than 20 years. |
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| What factors influence my credit scores? |
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| Various factors determine your credit scores, including the following: |
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Payment History |
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Outstanding Debt |
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Length of Credit History |
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Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections |
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The amount of credit used compared to the credit available |
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| How do my credit scores affect me? |
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| Your credit scores are an important indicator of your financial health. Lenders use your credit scores to determine: |
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Whether or not you are a good candidate for a loan |
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What type of interest rate you will pay |
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| While your credit scores are a key determinant of your creditworthiness, lenders also examine the information on your credit reports and your loan application. Regularly checking your credit reports enables you to: |
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Be informed of the most up-to-date information in your credit history |
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Correct any inaccuracies, to make sure that your credit data is a true depiction of your credit record and increasing your chances of receiving credit under the best possible terms |
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| What is a "good" credit score? |
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| There are several types of credit scores available. Typically, the higher the score, the better. Each lender decides what credit score range it considers to be a good credit risk or a poor credit risk. For this reason, the lender is the best source to explain what your credit scores mean in relation to the final credit decision. After all, they determine the criteria used to extend credit. Credit scores are only one component of information evaluated by lenders. |
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| What is credit scoring? |
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| Credit scoring is a method used by lenders to help decide whether or not you are a good candidate for a loan. |
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| Lenders employ a credit scoring system to determine your credit scores: |
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Compares information in your credit reports to the performance of consumers who have similar credit characteristics |
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Examines many credit characteristics including your payment history, the number and kind of accounts you have, the number and frequency of late payments, and any collections or bankruptcies |
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| Generally speaking, positive credit characteristics make your credit scores higher and help you to qualify for better loans. Negative characteristics make your scores lower and may interfere with your ability to qualify for the best loan terms. |
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| How is a credit scoring model developed? |
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| A lender creates a credit scoring model by using several criteria: |
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| Lenders employ a credit scoring system to determine your credit score: |
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Selecting a large sampling of customers |
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Analyzing the data in their credit reports to determine which factors relate to creditworthiness |
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Assigning a degree of importance to each of the factors, based on how accurate a predictor it is in determining who will repay their loan on time |
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