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A credit score is a number between 350 and 850. This is calculated
based on approximately 45 different factors from an individual's
credit profile. The score is intended to indicate an individual's
credit worthiness. The higher the score the better. The three
major credit repositories have slightly different data on each
person. So, the credit scores from the three repositories are
usually different.
Credit scores are frequently
referred to as FICO scores, because they are based on scoring
models developed by the Fair, Isaac Company. Each credit repository
has their own name for a credit score. Equifax calls it a Beacon
Score, Experian calls it a FICO Score, and Trans Union calls it
an Empirica Score.
Credit Scores are changed by changing the credit data. The score
is a function of the data found in an individual's credit profile.
There is no way to directly change a score.
Every consumer begins with a perfect 850 score before the credit
data is sent through a credit scoring model. The model takes different
factors from an individual's credit profile and reduces the score.
The factors used to reduce the score may not necessarily be derogatory
information. For example, having too many open credit cards accounts
is not derogatory information. However, there is the potential
that a person could charge more on their credit cards than they
can pay off. This potential risk lowers a credit
score.
Score Factors. A credit score is accompanied by four score factors.
These factors are the four most important reasons the score has
been reduced from the perfect 850 score. These are the four most
important issues a consumer should look at in trying to improve
a credit score. For example, someone with too many credit cards
should close any unused accounts. Unfortunately, there is no way
to know how many accounts must be closed in order to raise a credit
score.
Another way to change a credit score is to dispute incorrect
credit data with a credit repository. How to Dispute Credit Information
with the Repositories.
More information about FICO scores. The Fair, Isaac Company--
in conjunction with the three major credit repositories-- worked
together in the late 1980's to create a scoring system that could
be used to rank potential borrowers based on the likelihood that
they would pay their credit obligations. In order to accomplish
this they compiled a sampling of over a million credit files with
a variety of different credit histories. Using these files they
were able to identify certain consistencies among the consumers
that were remiss in paying their debts. They isolated approximately
45 factors within a credit profile that could be used to calculate
a score that would allow a quantifiable comparison between borrowers.
Each of the factors was given a different weighting based on its
importance as an indicator of delinquent payment behavior.
In creating the FICO score, the Fair, Isaac Company and the three
credit repositories intended to offer lenders a new tool in evaluating
perspective borrowers. The score a borrower receives is merely
an indicator and should be used by the lender in conjunction with
the entire credit profile and other outside factors.
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