HOW IS MY CREDIT SCORE DETERMINED? 

First, a brief history lesson. There are three (3) main credit reporting agencies whose purpose is to collect financial data from your bank(s), creditors and other financial sources and maintain this information throughout your lifetime. These companies are Experian®, TransUnion® and Equifax® and track your financial information and release it as credit reports to authorized recipients when you request credit, like a new credit card or buy a car.  

Each agency receives slightly different information from creditors and utilizes slightly different weighting factors or ranking of the information which results in each credit report being unique.

Your credit score, that three-digit number, is an expression of your credit worthiness. It will vary some degree from one credit agency to another based on available information and ranking and the method of calculation. This three-digit number will change over time as your financial behavior or life situations occur.

The modern credit scoring system goes back to the 1950’s and was created in partnership between the three (3) credit agencies and a company called “The Fair Isaac Corporation®”. Fair Isaac is the company behind the widely used FICO® score, which is calculated using a proprietary algorithm to combine data from your credit reports. It is typically updated monthly as new information is made available from lenders and other creditors. 

Lenders have their own proprietary weighting system regarding how they incorporate a FICO Score and other relevant information into the loan approval process. While your personal credit score is a three-digit number found on scale between 300-850, it only starts to gain meaning once it’s evaluated within the context of the different credit score ranges:

• 800-850 = Exceptional – If your score is above 800, then you are indisputably in possession of a superior credit score. As a result, you will likely be offered very favorable lending terms.

• 740-799 = Very good – An above average score. Clearly, you’ve taken care over the years to create a responsible credit history. A score in this range demonstrates that you are a low-risk borrower.

• 670-739 = Good – Now your score is getting better. For many U.S. lenders, a score in this range is considered slightly above average.

• 580-669 = Fair – While this score demonstrates some creditworthiness, it’s fair to average at best. However, there are lenders who will approve loans to applicants in this range with some provisions.

• Less than 580 = Poor – A significantly below-average score. If you score less than 580 you are almost certainly a credit risk to lenders. 

 

Even if your credit is Poor to Fair, you may still be able to find a mortgage and buy a home. Also, check our other Credit Repair Solutions that will help you repair your credit and raise your credit score.