Credit Report and Credit Score
Credit Report and Credit Score : Your credit report and the credit score attached to it are two different things – but both are needed by lenders to assess whether the borrower has a good chance of defaulting on a loan or not. The credit report is what lenders will use to determine creditworthiness and the credit score is a numeric representation of that report that lenders will use to determine the interest and terms of the loan. The FICO scoring model is widely used by lenders to determine the score of individuals that are potential borrowers. While it sounds complicated, once you understand the FICO scoring model the concepts are fairly simple. 개인파산 변호사 The FICO scoring model essentially breaks down the information on your credit reports into single, numerical “points”. A FICO score is a three-digit number that gives you a measure of your credit worthiness.
Okay, so how does a FICO score work? The FICO scoring model is designed to assess your likelihood of defaulting on a loan based on information from your credit reports and credit score. Simply put, the FICO scoring model takes the information that is in your credit reports from the three major credit bureaus and uses them to determine your credit score. Therefore, they look at the amount you owe, your current payments, how much credit you have remaining, your payment history and your credit mix. The information then is put through a mathematical formula, which produces a three digit number. Most people understand that the lower the number, the less likely you are of defaulting on a loan, but they don’t really understand the factors that go into that number.
That’s where the free credit report comes in. The free credit report is offered by some of the major credit report bureaus – Dun & Bradstreet, Equifax and Experian, and is available to you for free. By requesting a copy of your report, you can look over your credit report and see how lenders are evaluating your creditworthiness. The number assigned to you by the FICO scoring system is a percentage of that report, with the majority of lenders and potential lenders using the range of 300 to 850 as the cut off point. The FICO scoring model takes an average of your payment history – 15% of the total – and your credit mix – 10% of the total – and analyzes how likely you are to default on a loan. For example, if you cover your loans with installment payments (car payments, home payments) then you are less likely to default on the loans because these installment payments are a big part of the credit mix. Therefore, when a lender looks at someone that has a home loan or car loan and a credit card they are going to look at that person as less of a risk because these loans are spread out over a long period of time and don’t always reflect the latest financial mistakes.
A free copy of your credit report is a great education for anyone wanting to learn about their credit and finances. By checking over your report you can ensure that the information is correct. Bad information can cost you a lot of money simply because a bad loan score can result in you being unable to get a mortgage, a car loan, rent an apartment or even a cell phone. Check your report often and you can also make sure there are no mistakes!