What Is a Credit Scoring System?

What Is a Credit Scoring System?
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Credit Scoring Systems examine your credit report in different ways to rate your creditworthiness. The system itself was developed by Fair Isaac Corporation. Your credit score, frequently referred to as a FICO score, is evaluated by lenders, credit card companies, apartments, banks and some employers. It is vital you appreciate your score and keep it above 660. Under the Federal Equal Credit Opportunity Act and the Fair Credit Reporting Act, your rights are protected.

Factors That Determine Your Credit Score

Certain factors are used to determine if you are creditworthy. Defaults from the past haunt your credit. Creditors feel that if your were delinquent on past accounts, there is a high chance of delinquency in your future. Your credit usage is evaluated in terms of maxed-out credit cards and how many are close to limit. Your credit file age according to Fair Issac’s model is used to determine riskiness. Another factor is how many times you ask for credit. Too many requests for credit is frowned upon. Your mix of credit is also a factor. Having installment and revolving loans is better than owning secured credit cards.

Different Types of Credit Scores

Credit reporting agencies, lenders and independent companies cultivated their own way of scoring. Your credit-based insurance score is used by insurance companies in decisions concerning what policy to give and setting your rates. Credit reporting agencies may have different scores on you depending on what information was reported to them. An estimated score, which is different than your credit risk score, is used at times by companies. Companies use fraud scoring to measure an applicants' legitimacy. It evaluates inconsistencies within current and past applications.

How the Fair Isaac Corporation Assess Credit

Fair Isaac Corporation denotes that 35 percent of your FICO score is determined by your payment history. Having a steady payment history increases your score. Monies owed covers 30 percent of your FICO score. Your credit history length makes up 15 percent. You must have reliable history when your credit history is short. New credit encompasses 10 percent, and 10 percent of your FICO score is based on your various credit ventures.

Your Consumer Rights Concerning Credit

Credit laws are enforced by the Federal Trade Commission. It protects your credit rights. The Federal Fair Credit Reporting Act upholds your right to accuracy and privacy from credit reporting agencies. Under the FCRA, all three of the nations credit reporting companies must provide you an up-to-date copy of your credit report once every 12 months per your request. If you are denied a job for credit reasons, you have a right to know the information from the credit reporting agency that supplied your report.