The commonest kind of a credit score that is used by the creditors is known as the FICO score. FICO score was developed by fair Isaac and Corporation that was one of the first organizations to work on a credit scoring system. The credit scoring system represents the information present on your credit score as a three digit number. Since the credit score is based on your credit history it is supposed to represent your credit worthiness. The exact algorithm that is used in calculating the credit score is a trade secret. However, FICO has let’s known that the use more than 30 parameters to calculate the credit score of a person.
They have also let down the five most important factors that are taken into consideration what calculating the credit score. These factors are your payment history, credit utilization, mix of credit, age of credit frequency of credit applications.
The credit scoring model represents the likelihood a few making the payments on your loan or going into default. When the credit scoring model was first implemented many lenders used it to profile borrowers as a high risk or low risk consumer. Credit scoring is also widely used in the mortgage industry. It helps the creditors to streamline and quickly underwrite your loan application.
If you are considering your FICO score the new FICO score will fall somewhere between 300 and 900. Most of the consumers fall between the figure of 500 and 800. A score of 500 is constant to be a very low credit score which means that the consumer is a high-risk. The score of 600 is considered as a medium score whereas anything over 680 is usually considered to be a high credit score.
In the recent times sense the meltdown in the economy and the various problems faced by millions of Americans in reaping the credit that they borrowed, lenders have become more stringent and strict with their lending rules. This means that while some time back if a particular credit score qualified as a healthy credit score, lenders today require a higher credit score to approve you for credit.
Having a high credit score means that your application will be approved after only a superficial review whereas low credit score means that you may not qualify at all. If you have a sub-prime credit score that falls somewhere in between a high and low credit score you may be asked to provide various other documents to prove your income, job stability etc. You may also need to provide explanations for the negative entries on your credit report if you wish to be approved for your loan.