What credit scores mean?
- This topic has 1 reply, 2 voices, and was last updated 10 years, 6 months ago by
.
-
Posts
-
Can someone please explain what credit scores mean? Thank you.
Re: What credit scores mean
Credit scores are just a grade for how you behave financially. Having a good grade means that you are responsible knows how to handle credit and can be trusted to return the money you lend. If you have good grade (i.e. good credit score) lenders will want to lend you money and will offer you their best terms.
Having a bad grade signals creditor that they can’t trust you to make payments on time, so chances are they will not approve you, and even if they do – you will get their worst terms because you pose a great risk to them.
The basic principle of credit scores is: credit history + credit present = good predictor of future.
There are three Consumer Reporting Agencies (Credit Bureaus) that collect financial data on consumer. They are Equifax, Experian and TransUnion. Each collects financial data on millions of consumers from numerous financial institutions.
All the financial data about you is collected in a single file, also known as your Credit Report. A mathematical algorithm is applied to the data contained in your report. The result is a single number – your Credit Score.
The one most commonly used credit score is FICO. Over 90% of all creditors use it to make landing decisions. When you apply for credit, the first thing a creditor does is to pull your credit reports and scores from the 3 major credit bureaus to process your application.
Because the importance of credit score and their high impact on consumers, the government has regulated this huge business by means of the Fair and Accurate Credit Transactions Act (FACT Act).
You have various rights under the FACT Act. One very important such right is that you are entitled to a free copy of your credit report from each of the 3 major credit bureaus every 12 months (See free-annual-credit-report.html for more information). You are also entitled to receive your credit score upon request, but not for free.
For more information on what credit scores mean see what-do-credit-scores-mean.html.
- You must be logged in to reply to this topic.