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Credit Score And Reporting Agencies

credit score
Your credit score is what will determine whether you are approved for a loan or not. It is the score used by your creditors and lenders, insurance companies and financial institutions to make a wide range of decisions about you as a consumer. The most important thing to understand here is how this score is generated and what it means in terms of eligibility for a certain credit.

Many companies create and operate credit ratings of their customers. Some of them include, but not limited to Trans Union, Experian and FICO. They then apply a complex and proprietary formula based on your credit ratings and other factors to come up with a three digit number. This number will make or break the deal when applying for a loan or dealing with other financial matters. Depending on which formula they have used, this score can vary widely, typically with a difference of 50 or less, from one score to another. There are many other reasons why your credit score may be different in one company compared to another. The credit report may have a different type of information in one company than the other. Some of the information may not have been updated in a timely manner. The formula used may be entirely different. The score range may differ. Or it may be simply that your creditor usually reports to one particular credit report agency and ignores the rest. Whatever the reason, it is important to know that the score is not set in stone. In fact, because each credit report agencies use their own formulas and algorithms, one score that is considered as average by one agency may be below average to another.

Additionally, you may find that the credit score reported to one creditor is different than the one reported to another a month ago. Again, there are valid reasons for this discrepancy. For instance, the credit report was obtained after a month of delay. Another reason could be that the credit report agency used by one creditor is different than the agency used by another. Furthermore, you will notice that the scale used by different agencies is also different. Some agencies may have used a scale with scores ranging between 300 and 850 and the other being 300 and 900. Nevertheless, your goal should be to achieve the highest possible credit score, in order for creditors and lenders to consider you as low risk.

As specified earlier, a credit score in the range of 300 and 500 is a bad score. Creditors and lenders will hesitate to do business with you. A score between 600 and 720 will put you in the average score spectrum. Here, the lenders will tread carefully before lending any money. Obtaining loan with this score is not impossible. However, you may not get the best interest rate and terms available. There may be additional fees and charges as well. On the flip side, it is those consumers who have an excellent score (a score between 750 and 850) that get the best deals. Their interest rates are typically the lowest; they also get preferential treatment by creditors and lenders. Obtaining a loan for them is a matter of filling a couple of forms and waiting a few days for approval letter.

As mentioned earlier, credit scores play an important role for lenders in deciding whether to offer loan or not. Most complex loans such as business loan and home mortgage may take at least a month to be approved. This is because the lenders look at credit reports from multiple agencies, not just one or two affiliated to them. On the other hand, getting credit cards from a retail store is instant. Why? The reason is simple. These stores determine the worthiness of the consumer by looking at their credit reports that are instantly available. In other words, they do not have to go through the arduous task of getting the report from the credit report agency. Instead, they rely on the internal database containing this report. And this instant report for approving credit cards is more lenient in terms of score and other factors. Credit card companies and retail stores rely heavily on this database. It is easy on the consumers’ pocket as well.

No matter what, there is one thing that is common to all credit report agencies, creditors and lenders when issuing a credit score or loan. Your credit score does not take into account your personal information, such as sex, religion, race, marital status, sexual orientation and nationality. It will also not consider your checking or savings account balances or the value of your personal assets and investments. The information is based exclusively on your bill payment history, number of accounts and how careful you were with your finance in the past.