![]() ![]() Credit Score NamesįICO is the main developer of credit scores, of which there are many versions. How credit scores are used and how they predict future creditworthiness is detailed in Credit Scores. Credit scores differ by how much weight they give to each factor. The primary purpose of credit scores is to predict future creditworthiness by looking at past creditworthiness, under the assumption that the past prognosticates the future, so the major credit scores use the same type of information, specifically: payment history, amount of debt, length of credit history, the total credit available to the borrower, the amount of credit that the borrower has recently obtained, and the number of times that the borrower has recently sought credit, called credit inquiries. The main competition to the FICO score is the VantageScore, which was developed by the 3 major credit reporting agencies - TransUnion, Experian, and Equifax - who also provide the data for calculating the FICO score. Other providers of credit scores offer lower rates for the lenders or use other information to assess borrowers who do not have much of a credit history. The primary credit score used by most lenders is the FICO credit score, because it is deemed best at predicting future creditworthiness. Lenders choose the credit score they want to use, and 2 factors determine their choice: cost and the predictive value of the credit score, especially in regard to the probability that a borrower will default. Other sources of information may include payment history for rent, utilities, and other regularly recurring bills. All credit scores are based on statistical analysis of data, and most credit scores use the data in credit reports, which are compiled by the 3 major credit reporting agencies. Higher credit scores usually result in lower interest rates for the borrower and under better terms. ET to learn from money masters how you can increase your earning power.Credit Score Types and Versions: FICO Scores, VantageScores, and Others › Money › Credit and Debt Credit Score Types and VersionsĬredit scores are used by most lenders and credit card providers to assess the creditworthiness of credit applicants, to determine whether credit should be extended to them, and if so, at what interest rate. Want to earn more and work less? Register for the free CNBC Make It: Your Money virtual event on Dec. "If you do those three things over and over for years, your credit is going to be just fine," he says. To improve and maintain a good score, consistently pay your bills on time, keep your balances as low as possible, and don't apply for too much credit too often. People tend to overthink the credit scores but it's actually pretty simple, Schulz says. However, if you request that your credit limit be increased to $8,000, with the same balance, your credit utilization rate falls to a more-acceptable 25%, Schulz explains. If you reduce your balance to $2,400, you're now only utilizing about 30% of your credit, compared to 50%.Īdditionally, you can request a higher credit limit from your credit card issuer to improve your utilization rate.įor example, if you owe $2,000 and have a $5,000 credit limit, your utilization rate is a higher-than-optimal 40%. Doing so can lower your credit utilization ratio, which is a major component that credit bureaus use in calculating your score.įor instance, say your credit card limit is $8,000 and your balance is $4,000. ![]() If you have different types of debt to tackle, focus on reducing your credit card balance. Credit experts agree that the best way to improve your credit score is to reduce your debt, which is easier said than done.
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