Credit Scores Explained, Credit Explained, Scores Explained

Credit Scores Explained, Credit Explained, Scores Explained

This time I want to explain what a credit score is and what it’s really indicating. There are many different versions of credit scores available and there are many different companies that provide credit scores. FICO® for example has 49 different scores available to lenders that they pick from, depending on their specific needs.

VantageScore® is the new company on the block, that has come along and created a scoring models similar to FICO®’s and Vantage is on their third version of credit score. A credit score is not judge of your good or bad credit behavior. It is simply trying to predict the likelihood that a borrower is going to have problems paying in the future based in  past payment behavior. Credit scores only look at your past payment history, it does not look at your age, race, where you live, it doesn’t look at your income it doesn’t look at  ethnic background credit scores don’t look at anything like that.

It simply looks at how someone paid in the past and predicts how they will pay in the future. That is all that is included when you create a credit score.

If  a borrower has a 600 credit score, every other loan is probably going to be a collection problem. If you look at loans provided to borrowers at 680 credit score you have one bad loan for every twenty one good loans.

A bad loan is not predicting that the borrower will default, but that there will be a collection problem. It may default, but there is a wide variety of things it indicate a bad loan. Someone who pays late all the time, somebody who misses some payments, that’s what they’re predicting.

Credit scores predict the likelihood that you’ll pay your bills on time in the future based on how you paid in the past. I can tell you very recently FICO® has entered into an agreement with a company to do some research on Facebook activity and how that could impacts credit scores so there looking at more sources of data than ever before.