|
Credit Scores
Credit scores - used by lenders to approve home
and auto loans and credit card applications - are based on the
information in a consumer's credit report and are an indication of the
prospective borrower's perceived lending risk. Though businesses use
numerous mathematical models to calculate the scores, Fair, Isaac and
Co.'s FICO score - ranging from 300 to 850 - is the most common formula.
Because a credit score can vary based on which of the
three major credit bureaus provides the rating, Institute of Consumer
Financial Education executive director Paul Richard urges consumers to
ask their lender what scoring model is being used. Fair Isaac may soon
eliminate much of the confusion surrounding its scores by prompting the
credit bureaus Experian and TransUnion to provide FICO scores along with
Equifax, rather than offer their own versions.
In the meantime, TransUnion executive Jan Davis says the
underlying factors used to determine a credit score - regardless of the
source - are actually more important than the number itself. A
borrower's debt load, credit history, and number of late payments are
all used to produce the number; but consumers can raise their rating by
eliminating the negative factors on their report. Though many
concentrate solely on boosting their score, Fair Isaac consumer affairs
manager Craig Watts says lenders may avoid borrowers with the highest
FICO scores because they do not present money-making opportunities.
"The Why Behind Your FICO Score Is What's Important,"
Akron Beacon Journal (04/09/02); Lin-Fisher, Betty.
Abstracts Copyright © 2002; Information Inc., Bethesda, Md. |
