Pennywise
Types Of Credit Scores
by: Sahil | last updated: November 12, 2009
Category: Standard Credit Cards | Tags: credit score types, models, credit score models, fico, credit ratings, types of credit ratings
Category: Standard Credit Cards | Tags: credit score types, models, credit score models, fico, credit ratings, types of credit ratings
A credit score is usually a three digit number that determines the creditworthiness of a person. This score is calculated by the credit bureaus by using information about the consumer’s past payment history, credit available and used, bankruptcies and other factors such as length of credit history. Having a good score is pivotal for securing a healthy financial future and can have a massive impact on a person’s financial as well as personal life.
There are many types of credit scores but the most common is the FICO score which is deducted by using an algorithm designed by Fair Isaac Company. This score is the most commonly used and accepted score in the United States. The FICO score can range from 350 to 800 and the higher the score, the more creditworthy a person is deemed to be. Your FICO score is not made available in the credit report but can be obtained by paying a certain amount to the credit bureau.
Other types of credit scores that are used are the NextGen Score and the Vantage score. The NextGen score is a scoring model planned by the FICO Company for evaluating consumer credit risk. It is comparable to the conventional FICO scores with regard to proposed use and common design. However, it is not as popular as the long-established FICO score; however it is used by some lenders. Other credit consumer scores are made available by Community Empower as the CE Score.
The three most important credit-reporting agencies introduced VantageScore. VantageScore employs a number range (501 to 990), which is unlike FICOs, and allocates letter grades (A to F) to definite score ranges. A borrowers VantageScore might be different from bureau to bureau, but inconsistencies usually occur due to data differences in the reported credit information, not because of differences among credit-scoring numerical models, comparable to FICO. Since FICO remains as the widely-used score by money lenders, the agencies carry on offering FICO scores or something similar.
The range of the FICO score is between 350 and 800 and the median score is 723; having a score in excess of 720 is a good sign. This means that you are eligible for most of the loans and credit limit increases. The credit score is calculated differently by the three credit bureaus Experian, Equifax, and TransUnion. These three scores are slightly different since there may be a discrepancy in reporting by the creditors to these bureaus. However, creditors do not take only the score into consideration and have their own standards of judging the risk in opening a new line of credit.
These scores can also be used by other people excluding creditors such as your employer or other social groups. An employer can run a credit check on a potential employee in order to gauge the honesty and financial standing of that person. However, the Fair Credit Reporting Act gives some rights to the consumer regarding this and the employer has to take the permission of the employee before getting hold of the credit report.
Improving the FICO score by doctoring it has been observed in the past and this practice still continues. A person can add an authorized user to the account and not let that person make any purchases. This will result in a favorable credit history and scoring for the authorized user if the history of the primary card holder is long. This is because of the combined nature of the account where only the primary cardholder is held liable on the account. To counteract this practice FICO has developed a new method called FICO8 which it says will reduce such misuse of the card.
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