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Improve Your Bad Credit Score and Get Approved - GreenPointe Financial 

About Credit Scores

A credit score in the United States is a number representing the creditworthiness of a person or the likelihood that person will

pay his or her debts. It has shown to be very predictive of risk,

and has made credit more widely available to consumers and

lowered the cost of providing credit.

A credit score is primarily based on a statistical analysis of a

person's credit report information, typically from the three major American credit bureaus: Equifax, Experian, and TransUnion.

Lenders, such as banks and credit card companies, use credit

scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Using credit

scores, lenders determine who qualifies for a loan, at what

interest rate, and to what credit limits. The Fair Isaac Corporation,

known as FICO, created the first credit scoring system in 1958,

for American Investments, and the first credit scoring system for

a bank credit card in 1970, for American Bank and Trust.

Each of the three credit bureaus may have different information

about any particular person, and there are many different credit

scoring models in use, which means a person may have several

different credit scores simultaneously. Many lenders use third-

party credit scoring systems, such as the FICO scoring model,

NextGen, VantageScore, and the CE Score, to evaluate the creditworthiness of a borrower.

Because a score does not consider race, sex or ethnicity, it is

generally considered to be the most fair and objective

underwriting tool available to lenders. The Federal Reserve Board

did a study that noted scores have increased the availability of

credit and reduced the cost of credit. Scores have also proven to

be very predictive in assessing risk.

FICO and Other Scores

FICO scores are the credit scores that most lenders use to

determine your credit risk. Your FICO credit scores (you have 1

score from each of the 3 major credit bureaus) can affect how

much money a lender will lend you and at what terms (interest

rate). So, taking steps to improve your FICO scores can often

help you qualify for better rates from lenders – which can save

you money!

FICO Scores are calculated from a lot of different credit data in your credit report. This data

can be grouped into five

categories as outlined in

the associated chart. The percentages in the chart

reflect how important each

of the categories is in determining your FICO score.  

These percentages are based on the importance of the five

categories for the general population. For particular groups e.g.

people who have not been using credit long - the

importance of these categories may be somewhat different.

A FICO score takes into consideration all these categories of

information, not just one or two. No one piece of information or

factor alone will determine your score.

How Are Credit Scores Derived

The exact formulas for calculating credit scores are closely-

guarded secrets. However, most scores use a multiple-scorecard

design. Each version may use individual scorecard. Typically, a

given borrower is compared with other consumers; e.g., a

borrower with two 30-day late payments will be scored against

a similar delinquent-payer population. The borrower then is

graded according to the risk-determining mathematical variables

used by the scoring model, ranking him or her within the group of

similar borrowers. Most large banks build and use their own

proprietary statistical credit-scoring models, often in conjunction

with third-party scoring models.

There are several generally-accepted algorithms for extrapolating

the primary factors generating a low credit score. Typically, one

or more of these algorithms is used to list reasons for when a

loan applicant is denied credit, in satisfaction of the Regulation B

requirement that specific reasons be given to the applicant. These reasons are often specified using a reason code that is

more-or-less standardized across scoring models.

Finally, for easy use, most scores are mathematically scaled so

that they fall in the general range used by prominent scoring

model competitors. Since the FICO provides the dominant

scoring method; non-FICO scores often mimic FICO scores

(and are frequently derisively referred to as "FAKO" scores). 

Widely used, these scores (e.g. TransUnion's "TransRisk New

Account", Experian's "ScoreX", and "PLUS" scores), may be less

expensive to buy than is then your TRUE FICO score.

 

 

 

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