A credit score is a three digit number calculated by an algorithm used to determine a consumer’s creditworthiness.
A credit score is primarily based on the data reporting within a consumer’s credit file, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax.
Credit scores are not all the same.
There are different credit scoring models which calculate the scores differently and have different ranges.
Fair Isaac Co.
*FICO has more than one formula for determining a credit score.
*The 3 most common FICO Algorithms are:
- FairIsaac 2.0 (used by Experian)
- Beacon 5.0 (used by Equifax)
- FICO RiskScoreClassic 04 (used by TransUnion).
Don’t let the different scores confuse you, they all follow the same basic algorithm in determining your creditworthiness.
By improving the factors which are used to calculate the credit scores, your credit scores increase.
Banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.
Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and the amount of credit they issue.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ the same techniques.
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