Interpreting Credit Scores
The number one variable lenders use to
determine if they should grant you loan approval is your credit
score. You have three versions of your credit report, one from
each of three major credit reporting companies. The three major credit reporting agencies are TranUnion, Equifax, and Experian.
Each of the bureaus have their own unique formula in determining
how to score your credit. Every utilized method is used to
detrmine the degree of credit risk that you are. The point
system is the same for all the bureaus and can range between
300s-800s. It is very common that your credit score is going to
vary between 50-125 points when comparing your profile from all
three agencies. The differences are going to be a result of the
different formulas used by the bureaus for credit scoring as
well as the information they have about you.
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2016 credit score!
How credit scoring formulas are used:
Each of the reporting agencies use their own weighting system
for determining credit scores. For example, a late payment can
be looked at as more of a dramatic issue by one agency thus
negatively influencing your credit score more drastically. Also,
your credit score may vary depending on what type of loan or
credit you are interested in. Meaning, your credit score is
going to be different when applying for a car loan than if you
were applying for a mortgage. Both of these scenarios are
examples of how the different weighting systems used by the
credit companies work.
About the varying information listed on each credit report:
A previously noted, each of three credit reporting bureaus
have their own file on you, each with different information.
This is usually a direct result of the different agencies
obtaining your information from your creditors at different
times. There really is never a time when all three of your
credit files are going to align perfectly.
if you get a 3-1 credit report, TransUnion may have your score at
660, while Experian reports you 700 and Equifax at 650. Lenders
will typically utilize the median score. Learn how each of the major
credit reporting agencies are reporting your credit by
purchasing a 3-in-1 credit report.
notice a significant difference in credit scores amongst the
make sure there is no
erroneous information on your report. Negative information can
effect your score adversely. It is important to fix any problems
How credit scores are calculated:
Here is how it works...Each company
utilizes a scoring method that focuses on answers to a
questions. Each question and answer is assigned points that are
rooted on the degree of intensity positioned on each the
particluar situations by the
reporting agency. All of the information that is use when
generating your score is deemed predictive of your future credit
Just like almost every scoring system,
credit scoring is not always 100% trustworthy. It is common for
an individual that pays their loans and credit on time to have
an inferior score than someone with late payments and accounts in
Factors that are used to determine your score:
Credit History - How long is your credit history?
Payment History - Do you exhibit a
positive credit history of paying bills on time?
Types of Credit - What kind of credit do
you have, i.e. auto loan, credit cards, utilities, etc..?
Credit Inquiries - How many times have
lenders viewed your credit history as a result of applying for
any type of credit or loan. The greater the amount of
inquiries you have in a small period of of time, the worse.
Therefore, do not apply for multiple loans and credit over a
short period of time.
Debt - Are your credit cards maxed out?
How much of your credit lines are you utilizing? Obviously the
more debt you have, the greater the adverse effect on your
Factors that are by law not allowed to be
used when determining your credit score are: religion, gender, race,
where you live, what country you are from, and whether
you are married or not.
Maintaining a positive credit
copy of your credit report
is the first thing you should do. You want to make sure that the
information is accurate and up to date. You should always pay
your bills on time and keep your balances as low as you can.
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