Categories
Uncategorized

Credit Scores – How Do They Work?

Credit scoring is a complicated process and each of the 3 major credit
repositories have their own credit scoring models in place to determine a
borrower’s credit score. The 3 main credit repositories are Equifax, Experian,
and TransUnion. Equifax has credit scores that range from a lowest possible
score of 300 and a highest possible score of 850. Experian has a range of
340-820 and TransUnion 150-934. Just like computers have upgraded operating
systems over the years such as, Windows 98, Windows 2000, and Windows XP, the
credit scoring system versions update periodically also. Not all lenders use the
same version or the most updated version when obtaining a credit report and
credit score for a borrower. Therefore, this is one reason why you may have
varying credit scores between one lender and another.

There are five major components or factors that help to determine your credit
score. Roughly 35 percent of your credit score is derived from your payment
history, 30 percent from how much you owe compared to how much you have
available, 15 percent comes from length of credit history, 10 percent from new
credit and recent inquiries, and the final 10 percent comes from various other
items such as the mixture of credit you currently have. Next we will discuss
each of the five components in further detail and explain the basic principals
as to how credit scoring works. This information is to be used only to help
educate and as a guide to assist with the basic ideas involved in credit
scoring.

Leave a Reply

Your email address will not be published. Required fields are marked *