A credit rating, or score, is what lenders examine to determine creditworthiness. The score largely determines whether a creditor will extend credit or lend a person money. Credit scores influence interest rates and overall terms of credit and loans. Some employers check credit scores of prospective employees. Landlords frequently run credit checks on possible tenants.
Reporting Agencies
A credit score is sometimes known as a FICO score. FICO is an acronym for the Fair Isaac Credit Organization, a pioneer in the credit-reporting field dating to the 1950s. FICO is the most-used model in computing credit scores. Three credit-reporting agencies gather data about credit practices: Equifax, Experian and TransUnion. Credit score calculations are not an exact science, which accounts for discrepancies in the agencies tabulations.
Credit Utilization
Factors such as the ratio of available credit versus the amount of credit expended help determine a credit score. This key ratio comprises about one-third of the score.
Magnitude and History
The extent and duration of available lines of credit, along with their specific nature--credit cards, mortgage, auto loan, for example--account for another one-third of a credit score. A lengthy track record of prudently managing credit increases a credit score.
Payment Record
The final one-third of the credit score calculation considers payment delinquencies: late and missed payments. Other matters that affect scores include numbers of credit checks, which often indicate applications for more credit, and frequent changes of address.
FICO Range
FICO scores range from 300 to 900. The higher the score, the more likely a person will get favorable credit terms. A credit rating of 650 or better is considered good. Credit scores below 500 are deemed very high risk for lenders. If a FICO score is in this lower stratum, a person may still qualify for certain forms of credit, such as a credit card, but the terms and interest rates will reflect the higher risk.
0 comments:
Post a Comment