How to Calculate a Credit Score for a Loan

A number of factors go into determining a credit score. One of the most commonly used credit scoring systems is offered by Fair Issac Corp. The score that system produces is known as a FICO score. Other companies offer similar credit scoring models that are based on a person's or a business's credit history. Although calculating your own credit score is challenging, there are ways of finding what score you need to qualify for loans.

Instructions

Calculate a Credit Score for a Loan

1

Contact a credit bureau. You can find out your credit score by contacting one of the three major credit bureaus (Experian, Equifax and TransUnion). Under the Fair and Accurate Credit Transactions Act of 2003, consumers are entitled to one free credit report from each credit bureau every 12 months. However, this free credit report does not contain your credit score. Your credit score is available for purchase from the credit bureau after you have obtained your free credit report.

You can go to AnnualCreditReport.com to request your free report. Call a credit bureau to purchase your credit score. This will help you know what lenders will see when looking at your loan application.

2

Gather credit history information. If you want to compute your own credit score, you will need a detailed credit history. This can include the number of credit cards you have, the age of your loans, the number of loans you have recently applied for, the date the last loan or credit account was opened, the number of loans that have a balance and the balance amounts, the number of days you have been delinquent in paying a loan, the number of accounts currently past-due, and any bankruptcies, liens, foreclosures, repossessions and collections within the last 10 years.

All of this information goes into determining your credit score, which is based on a complex mathematical model. Although the exact formula used by credit scoring companies is not disclosed, you can use a general rule of thumb. The more negative the credit history information, the more it will lower your credit score. Bankruptcies and foreclosures usually hurt credit scores the most.

3

Ask questions. If you have applied for a loan and been declined, the Equal Credit Opportunity Act requires the creditor to furnish you with a notice stating the specific reasons your application was rejected, or to tell you that you have the right to learn the reasons if you ask within 60 days.

Ask the creditor for an explanation. Indefinite and vague reasons for denial are illegal. If you were denied credit because of specifics in your credit report, the creditor is required under the Fair Credit Reporting Act to furnish you with the name and address of the credit bureau or agency that supplied the information.

Call the credit bureau within 60 days of the notice of rejection to find out what the information in your credit report said. If it was related to your credit score, ask the credit bureau what your score is. This information is free and it can help determine what score might be considered acceptable by a lender. The creditor can tell you why your application was denied, but the credit bureau can tell you what information is in your report.

According to Fair Issac Corp., people with credit scores above 750 are considered excellent credit risks. Scores around 700 are considered good, scores around 650 are fair, and scores below 600 signify poor credit risk.