Having a good credit score is deemed to be prestigious and highly critical. If you are a resident of the US, you would have always considered this figure to be vital. But what does this really mean? Who is the universal monitor for the credit scoring system? Are there different credit scores in existence? Read ahead and get to know these facts in detail.
What is Credit Score?
Credit score is a statistical figure that pictures the creditworthiness of a person. Whenever an individual opts for a loan, the lender or the creditor would want to know the individual s credit score to start with for this would form the basis of the credit that is offered to the individual. Credit scores are considered to be the base on which the lenders make their final decision regarding the approval amount and percentage of interest.
The higher the credit score, the better is the credit worthiness and the repayment capability of the individual. A higher credit score is associated with nominal interest rates and higher loan sanction probabilities.
The credit score of the residents is being monitored and maintained by three different bureaus in America. They constitute the Experian, Trans Union and Equifax. The very popular credit score rating system that is in existence is based on the FICO model developed by the Fair Isaac Corporation in the year 1956. Based on the data reported and collected at the bureaus, each of them calculate and maintain their own credit scores for the residents. As a resident, you can resort to get your credit report for free from the bureaus only once in a year, which could further help you in understanding the existence of negative entries in the same.
However, in addition to the FICO model, VantageScore is yet another credit rating product that has been adopted by the three bureaus since 2006.
FICO Score versus VantageScore
FICO score is calculated based on the 5 different financial entities that you currently have. While 35 of the score depends on your payment history, 30 on the current debts that you have, 15 on the length of your credit history, 10 on the new credits that you have and the last 10 on types of credit that you own, the scoring system in case of VantageScore differs a bit.
While FICO scores available at the 3 different bureaus are likely to vary for the same individual since it is dependent on the data reported/collected, VantageScore is deemed to be almost the same at least in theory.
While 32 of the VantageScore is based on your payment history, 23 of it is calculated based on the credit utilization, 15 on the current credit balances that you have, 13 on the depth of your credit, 10 on recent credit and 7 on the available credit, the scoring system has a 501 990 scale on contrary to the scale of 300 850 offered by the FICO model.
The Know How to Have Good Credit Scores
The following are the best and the simplest means that would enable you to have a good credit score in reality.
Ensure that you pay all your bills on time.
Make sure that you do not default in any of your debt repayments.
Try to keep your current credits well within the limit. Let your current credit be way apart from what is granted to you. This would give you a better debt to credit ratio which in turn can pave way to a good credit score.
Make sure that you never get into delinquent debts for this would reflect negatively on your credit score.
The number of credit accounts that you have does matter. See to it that you have at the most 2 or 3 creditors at a time.
Ensure that you have a good credit limit with every creditor for this would offer a positive impact to your credit score.
Always ensure that you have a lengthy credit history since a short one can increase the chances of indecisiveness with respect to your creditworthiness.
Author Resource:
Rolf Joho is a writer with many various interests and he owns several websites on a variety of topics. Some great resources for you about Credit Score would be to visit http://www.durac.org/ .
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