dcsimg

Demystifying the Credit Scoring / Rating Process

By , Editor-in-chief

Our credit card articles, reviews and ratings maintain strict editorial integrity; however we may be compensated when you click on or are approved for offers (terms apply) from our partners. How we make money.

Demystifying the Credit Scoring /  Rating Process

Have you ever wondered if you had "good credit" or "bad credit" and how creditors, such as banks, determine if you are creditworthy. If so, you are not alone. For decades the procedure most creditors have used to determine your creditworthiness or rating has been shrouded in secrecy. Fortunately, though, recent legislation in California has helped to shed some light on the credit scoring/rating process. The legislation has been viewed as a "major step forward" by consumer friendly organizations across the country. The following tips will hopefully help you to better understand the credit scoring process, and, thus, improve your credit score!

* Perhaps the most notable outgrowth of the legislation was an announcement last month by Fair Isaac & Co. , a company that develops credit scores that are used by 75% of the nation's mortgage lenders and many credit card issuers. The announcement disclosed the criteria that Fair Isaac uses in determining a consumer's credit score, which Fair Isaac refers to as a FICO score. You can view this criteria on Fair Isaac's web site and on USA Today's site (contains a concise overview and helpful pie chart).

* Fair Isaac has also made a commitment to allow interested consumers to view their actual FICO scores, which range from about 300 to 900 (the higher the score, the better one's credit rating is). The timetable for this disclosure is uncertain, but Fair Isaac is currently negotiating with the major credit bureaus. According to a recent article in BankRate.com, Fair Isaac hopes to be able to allow consumers access to their FICO scores by the end of July. It is likely that consumers will have to pay to obtain their FICO scores. While charging for such information seems to "be a slap in the face", the major credit bureaus have been charging consumers up to $8.00 for their credit reports for years. At any rate, this is an exciting development and we will keep you posted on further developments!

* The most important factor of the FICO score is payment history. In fact, payment history accounts for 35% of one's weighted score. If you have not consistently made your loan/credit card payments by the payment due dates, you can improve your score dramatically by becoming more conscientious. Moreover, late payments can result in stiff fees.

* In addition to increasing your chance of obtaining credit, a favorable credit score will help you obtain favorable credit terms. Credit card issuers, for instance, often determine the interest rate and fees that they will charge an applicant based on his or her credit score. The cards featured in our "low interest rate section" are only issued to applicants with a high credit rating. A FICO score in the 600-700 range is considered average.

* In closing, this is an exciting time for consumers. American consumers today are better educated than they ever have been. The recent developments regarding credit scoring will continue this trend and help to further empower consumers. So, sit back and enjoy the ride!

0 Comments

Be the first to comment!

FIND THE
BEST CARD
FOR YOU
Select Your Credit Score:
(Ok to Guess)
Excellent
(720-850)
Good
(690-719)
Fair
(630-689)
Bad
(350-629)
None/Limited I don't Know

Featured Partner Cards

loading
  How is your credit?
Oops! Your credit does not qualify you for this card. Applying and being rejected for this card could possibly hurt your credit
We are redirecting you to offers you are qualified for based on your credit.
720-850
Excellent
660-719
Good
600-659
Fair
350-599
Poor
X
CardRatings is excited to announce the launch of the
100% Free CardRatings Email Course to Learn How to Maximize Travel Rewards.

Created in partnership with ChooseFI

We partnered with ChooseFI to combine CardRatings’ offer expertise with ChooseFI’s tried and true travel rewards strategies. Get to know ChooseFI: they have changed tens of thousands of lives and recently won Podcast of the Year at FinCon.
You may think you are a rewards travel expert, but rewards strategies are changing (e.g., the days of card churning and manufactured spending are numbered). Learn powerful, sustainable strategies (a couple of which even you die-hard travel experts might not know). You'll be so glad you did.
We're planning more courses for the future; this is just the beginning of our journey.
BROUGHT TO YOU BY: