“When consumers buy a credit score, they should
be aware that a lender may be using a very different score in making a credit
decision.” Richard Cordray,
director of the Consumer Financial Protection Bureau (CFPB), said in an
email statement.
The three main credit reporting agencies;
Equifax, Experian & Transunion, use their own algorithms to calculate
credit scores and they each have several ways to calculate it. Fair Isaac Company also computes and sells
credit scores, known as FICO Credit Score, has more than 50 scoring models. This means that there are numerous variations
of a credit score. The good news is, based on CFPB’s research found that most
of the scores pulled by consumers and other organizations are consistent by at
least 75%. Between 20% - 25% of the scores that consumers purchase were moderately
different enough to move them into another credit grade that financial
institutions use to determine what consumers may qualify for loan rates. The
remaining 1% - 5% of the consumers’ scores was significantly different.
Note: FICO offers a calculator that lists the range
of interest rates offered based on FICO score.
This of course may differ based on the financial institutions rates
offered.
What is not widely known is that there different types
of scoring models that are based on the information the financial institution or
business wants to analyze. For example,
a credit score for a credit report pulled by an auto dealership may differ from
the credit score of a credit report that is pulled by a financial institution. This
is because the auto dealer may mainly want to focus on a consumer’s payment
history on auto loans, regardless of the financing company or financial institution. However, the financial
institution’s credit score may be based on a consumer’s entire payment history
on all trades reporting on the credit report. Another familiar type of scoring
model is the one used by Utility Companies.
Regardless the scoring model, the fact holds true
that if you have good credit, you will have high or good credit scores on them all and
if you have “colorful” or bad credit, you will have low or bad credit score on them
all. What important is that you
understand the “Anatomy of the Credit Score.”
- 35% is based on your payment history.
- 30% is based on how much of your available credit you've borrowed against.
- 15% is based on the length of your credit history.
- 10% is based on the diversity of credit you carry.
- 10% is based on the number of “hard inquiries” from creditors to qualify you for credit or open an account.
Other
types of scoring modes are Bankruptcy Scores and Fraud Shield Scores.
A Bankruptcy Score determines the likely hood
of a consumer to file for bankruptcy. Many lenders use it to determine whether or
not they will loan you money. A bankruptcy score also may influence the
interest rate that you may qualify for on a loan. Bankruptcy Scores are not generally shared with the
public. The lower the Bankruptcy Score
the better. A Bankruptcy Score of 1 – 100 is ideal. A score of 300 to 900 indicates
that you need to improve your credit by paying down debt especially on
revolving lines of credit, like credit cards.
A Fraud Shield Score identifies inconsistencies between application information and credit report data. Just as the credit score, the higher the score the better. If you have low Fraud Score, the lending institution many request or require additional document to verify your identity. Don’t give them a hard time though, it is for your protection.
A Fraud Shield Score identifies inconsistencies between application information and credit report data. Just as the credit score, the higher the score the better. If you have low Fraud Score, the lending institution many request or require additional document to verify your identity. Don’t give them a hard time though, it is for your protection.
As
with anything, financial and credit knowledge is Key to your Prosperity.
STEP 1: Understand where
you are with your credit.
- Pull your credit report to see what is reporting. You are able to get a least one free copy of your credit report from all credit bureaus. Go to AnnualCreditreport.com.
- If there are several past due payments or lots of collections reporting, you may want to save your money and work on restoring your credit. Try the myFICO.com Credit Score Calculator to start.
- If all accounts are paid as agreed with no collections reporting, you may want to invest in purchasing your credit score to see where you are.
STEP 2: Ask for help.
Regardless
of whether you need assistance with restoring your credit or improving your
credit to increase your credit score, don’t be afraid to ask for
assistance. Below are a few great
options to assist you.
Anngie
Jenkins, Credit Score Queen
National
Credit Educational Services
STEP 3: Assess your
spending habits, budget and savings plan.
This
is crucial with rebuilding or maintaining your credit. Feel free to contact me for assistance
through
- My monthly Common Cents Newsletter,
- My weekday Madam Money Minute Financial & Credit Tip Texts by texting MADAMMONEY to 46786,
- Registering for a Madam Money Financial BootCamp, or
- For One on One Financial Coaching contact me at the information below:
Tarra Jackson, Financial
Coach
Prosperity Now Financial
Management Services
(404) 852-6295
We are all looking forward to being a resource to you towards your Prosperity Now!
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