Credit scores tell a story about a consumer’s financial picture to creditors. That tale told regarding your score can be about a pristine three-digit number or a low score that results in automatic rejections. Upon an application for credit, lenders request credit scores from one or multiple credit bureaus. All of the data goes through an algorithm that will calculate the overall score.
How creditors look at data
Consumers have more than one credit score, with various companies determining the all-important, three-digit number. The most popular with lenders is the Fair Isaac Corporation (FICO) that provides lenders with essential data that help creditors assess risks and determine whether to approve or deny credit. Many versions exist that include industry-specific scores, including those for motor vehicle purchases.
Lenders also use various versions of VantageScores to determine creditworthiness. In addition to credit card issuers and installment loan companies, VantageScores are also widely used by nine out of the ten most prominent banks and nearly a third of the 100 largest credit unions.
FICO scores and VantageScores range from 800 to 850 for good credit and 300 to 579 for poor credit. Five factors determine that score: payment history, accounts owed, length of credit history, new credit, and credit mix. VantageScores are slightly different, with “excellent” ranging from 781 to 850 and “very poor” between 300 and 499. The company looks at five factors but uses influential factors instead of percentages.
A credit score can be a benefit or a burden, but it can provide a sense of financial security if used properly with a consumer’s diligence.