A good credit score can save thousands of dollars on the cost of a loan and open up numerous credit opportunities. Additionally, credit scores can be used for other purposes, like hiring decisions for job opportunities. ESL gets lots of questions about credit scores, especially about how credit scores work. Here are some facts:
Likeliness to repay:
Credit scores are designed to be predictors—forecasters—like telling what the weather will be. Only credit scores predict your likeliness to repay a loan. Therefore, credit scores are built to look for important behaviors and activities like paying on time … all the time.
To calculate a credit score, a special formula is used to compare the information in your credit history to a statistical model. The key areas where you are stacked up against the model include payment history, balances, utilization (balances compared to limits), length, recent credit, and types of credit.
How many are there?
There are actually dozens of different scores. For example, the FICO (Fair Isaac Corporation) Score, which is the most widely used model, comes with a range of 300-850. But the Vantage Score, a newer model designed for credit reports containing less information, features a range of 300-850 along with a letter grade such as A, B, C, D.
Keeping it accurate:
Lastly, all credit scores are based solely on the information found in your credit report. Consequently, the accuracy of your score depends upon the accuracy of your credit report. Use the Credit Report Dispute Letter template as a starting point if needed.