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How Credit Scores Work mostly **Spoiler Alert** You have more than one
Posted on 2/12/16 at 2:47 pm
Posted on 2/12/16 at 2:47 pm
List of all the different models used in credit lending
FICO Scores are created by the mathematical modeling of the information in your credit report.
When you have debt or credit accounts, your lender has the option to report your account history to credit agencies. These agencies (Equifax, Transunion, Experian) then keep basically a "report card" with no "Grades" (scores) with all this information.
*******These agencies DO NOT create or maintain the FICO Scoring Models but pay for scores********
FICO scores are created by the Fair Isaac Corporation (FICO) and the models they make.
Process of getting your FICO Score
1) A lender requests a FICO score
2) Credit agency provides credit history
3) Credit history plugged into FICO scoring Model
4) FICO score generated based on all information at that point in time
***BUT WAIT, MY "FICO SCORE" from XYZ is 797 and my mortgage lender came back at 717!?!?!?!***
There are a number of reasons this could happen, some are explained below
1) You are comparing scores from different scoring models
First a link to how mortgage lenders don't use the "new" FICO models most often given out on Discover statements etc LINK
What makes someone a better borrower for a mortgage is different than a credit card. For that reason, FICO offers credit lenders different scoring models depending on what type of credit is being applied for. Mortgage models are different than auto which is different than credit cards
FICO pushes their newer models so nearly all the free credit scores you see out there are not in any way used in decisions like mortagges or auto loans
2) The score you are looking at is not a real FICO score
Credit Reporting agencies and other places have to pay FICO for the use of their FICO models. When you do say Experian Credit tracking, they will give your their own internal Experian model BS type stuff.
If you want an authentic FICO score, you must make sure that somehwere listed is the trademarked "FICO" (and it is the model you want)
3) Your credit history has changed between when you checked
If your report showed January statement balances and your accts report and update for February, your score will change based on what the updated info is. Most accounts report every statement date and takes ~3-5 business days to update at the CRAs
Your credit score uses all current information as a snapshot and scores are independent from each other. WHat I mean by that is don't think of your score as something "over time" it is based only what is in your profile right now. It doesn't show "progress"
So what should I do to get an accurate credit score?
To get an accurate credit score you need to go through Fair Isaac Corporation or FICO. THeir website can be found at LINK
Keep track of what scoring model you are paying for and make sure it is what suits your needs.
For Example Mortgage FICO SCORES are typically the following models
Equifax Beacon 5.0
Experian/Fair Isaac Risk Model v2
TransUnion FICO Risk Score 04
FICO Scores are created by the mathematical modeling of the information in your credit report.
When you have debt or credit accounts, your lender has the option to report your account history to credit agencies. These agencies (Equifax, Transunion, Experian) then keep basically a "report card" with no "Grades" (scores) with all this information.
*******These agencies DO NOT create or maintain the FICO Scoring Models but pay for scores********
FICO scores are created by the Fair Isaac Corporation (FICO) and the models they make.
Process of getting your FICO Score
1) A lender requests a FICO score
2) Credit agency provides credit history
3) Credit history plugged into FICO scoring Model
4) FICO score generated based on all information at that point in time
***BUT WAIT, MY "FICO SCORE" from XYZ is 797 and my mortgage lender came back at 717!?!?!?!***
There are a number of reasons this could happen, some are explained below
1) You are comparing scores from different scoring models
First a link to how mortgage lenders don't use the "new" FICO models most often given out on Discover statements etc LINK
What makes someone a better borrower for a mortgage is different than a credit card. For that reason, FICO offers credit lenders different scoring models depending on what type of credit is being applied for. Mortgage models are different than auto which is different than credit cards
FICO pushes their newer models so nearly all the free credit scores you see out there are not in any way used in decisions like mortagges or auto loans
2) The score you are looking at is not a real FICO score
Credit Reporting agencies and other places have to pay FICO for the use of their FICO models. When you do say Experian Credit tracking, they will give your their own internal Experian model BS type stuff.
If you want an authentic FICO score, you must make sure that somehwere listed is the trademarked "FICO" (and it is the model you want)
3) Your credit history has changed between when you checked
If your report showed January statement balances and your accts report and update for February, your score will change based on what the updated info is. Most accounts report every statement date and takes ~3-5 business days to update at the CRAs
Your credit score uses all current information as a snapshot and scores are independent from each other. WHat I mean by that is don't think of your score as something "over time" it is based only what is in your profile right now. It doesn't show "progress"
So what should I do to get an accurate credit score?
To get an accurate credit score you need to go through Fair Isaac Corporation or FICO. THeir website can be found at LINK
Keep track of what scoring model you are paying for and make sure it is what suits your needs.
For Example Mortgage FICO SCORES are typically the following models
Equifax Beacon 5.0
Experian/Fair Isaac Risk Model v2
TransUnion FICO Risk Score 04
This post was edited on 2/12/16 at 2:56 pm
Posted on 2/12/16 at 2:49 pm to GenesChin
BEST WAYS TO IMPROVE YOUR CREDIT SCORE
1) Ensure all credit cards report $0 balances
In order to do this, you must pay off all your balances before your credit card reports them to the CRAs. Most CCs batch report the day your statement ends. The best bet is to call your CC and ask when reporting day is on your account and pay it off 1-2 days before and not spend a dime until then
There is a myth going on that it is bad to have a $0 balance on your card. This is FALSE. You actually get penalized if >50% of your revolving debt accounts have non-zero balances
What is bad are inactive accounts that don't report to CRAs. Some cards will not report credit activity if the card has been inactive and has no balance. If the card is in use then gets to $0 you are golden.
Do not open credit accounts
Every Credit account you open reduced your average credit age. They also typically do a hard inquiry on your credit report. Both items are negatives for you
Do not have too high total credit utilization
Credit utilization is your $Sum of all debts balance divided by $TotalCreditLimit. If this number is too high you will be penalized.
The levels are not known but I've read 5%, 10%, 20%, 25%, 50% and 75% are suspected markers where score penalties increase more significantly and gets flagged.
Do not have too high a credit utilization on one credit line
If you have $0 balances on nearly every CC but have a 99% credit utilization on just one credit card, you will be penalized as you are maxing out a LOC. I imagine the thinking is it would spill over
Diversify your credit account types
You can have installment loans (fixed payment e.g. mortgage/auto/student) , revolving debt (e.g. credit cards) and other type things.
Having multiple active positive reporting accounts is solid
Keep paying your bill another month
Your credit history age is typically the biggest thing holding back younger people. Every month you register as a loan paying citizen, the better your score gets. That is why some older people with no debt get penalzied as they didnt pay a loan of last month
Dispute Negative things if you can
If you have something negative on your record, you can dispute the negative item. If the creditor does not respond to the dispute or if they agree to your dispute, it gets removed
1) Ensure all credit cards report $0 balances
In order to do this, you must pay off all your balances before your credit card reports them to the CRAs. Most CCs batch report the day your statement ends. The best bet is to call your CC and ask when reporting day is on your account and pay it off 1-2 days before and not spend a dime until then
There is a myth going on that it is bad to have a $0 balance on your card. This is FALSE. You actually get penalized if >50% of your revolving debt accounts have non-zero balances
What is bad are inactive accounts that don't report to CRAs. Some cards will not report credit activity if the card has been inactive and has no balance. If the card is in use then gets to $0 you are golden.
Do not open credit accounts
Every Credit account you open reduced your average credit age. They also typically do a hard inquiry on your credit report. Both items are negatives for you
Do not have too high total credit utilization
Credit utilization is your $Sum of all debts balance divided by $TotalCreditLimit. If this number is too high you will be penalized.
The levels are not known but I've read 5%, 10%, 20%, 25%, 50% and 75% are suspected markers where score penalties increase more significantly and gets flagged.
Do not have too high a credit utilization on one credit line
If you have $0 balances on nearly every CC but have a 99% credit utilization on just one credit card, you will be penalized as you are maxing out a LOC. I imagine the thinking is it would spill over
Diversify your credit account types
You can have installment loans (fixed payment e.g. mortgage/auto/student) , revolving debt (e.g. credit cards) and other type things.
Having multiple active positive reporting accounts is solid
Keep paying your bill another month
Your credit history age is typically the biggest thing holding back younger people. Every month you register as a loan paying citizen, the better your score gets. That is why some older people with no debt get penalzied as they didnt pay a loan of last month
Dispute Negative things if you can
If you have something negative on your record, you can dispute the negative item. If the creditor does not respond to the dispute or if they agree to your dispute, it gets removed
This post was edited on 2/12/16 at 3:12 pm
Posted on 2/12/16 at 3:23 pm to GenesChin
quote:
Your credit history age is typically the biggest thing holding back younger people.
This always shows up as one of my negatives. Not hurting too bad a 736 though
ETA: Thanks mom for co-signing with me on first two vehicles
This post was edited on 2/12/16 at 3:25 pm
Posted on 2/12/16 at 5:40 pm to McCaigBro69
I've seen articles where some companies are looking at different items other than your current credit history to either replace or supplement their current models.
One is based on your friends on Facebook ( LINK)
I really dislike this idea, as I think it would be awfully unfair to someone like me who went to a poor public school in MS where my friends from that school haven't had near the success that I've enjoyed.
SoFi is taking an unique approach where they gauge your earnings potential by where you went to school, what your GPA was, what you majored in, and what career path you could be following. ( Link)
I support this idea as I currently make a decent salary, as my income should double in the next 4 years and continue to grow over my working life as I move up.
One is based on your friends on Facebook ( LINK)
I really dislike this idea, as I think it would be awfully unfair to someone like me who went to a poor public school in MS where my friends from that school haven't had near the success that I've enjoyed.
SoFi is taking an unique approach where they gauge your earnings potential by where you went to school, what your GPA was, what you majored in, and what career path you could be following. ( Link)
I support this idea as I currently make a decent salary, as my income should double in the next 4 years and continue to grow over my working life as I move up.
Posted on 2/12/16 at 6:34 pm to blackoutdore
quote:
SoFi is taking an unique approach where they gauge your earnings potential
What does earning potential have to do with being financially disciplined? That's a really stupid approach. Many wealthy individuals go bankrupt just the same as many poors stretch themselves out too much. How about evaluating credit based on financial discipline? I know, it's such a difficult concept.
Posted on 2/12/16 at 8:10 pm to blackoutdore
quote:
One is based on your friends on Facebook ( LINK)
I really dislike this idea, as I think it would be awfully unfair to someone like me who went to a poor public school in MS where my friends from that school haven't had near the success that I've enjoyed.
But if you're the underachiever in your friends group
Posted on 2/13/16 at 9:26 am to Porker Face
quote:
frick Fair Isaac Corp
They advertise for me that I always pay my bills on time. And I don't have to do a damn thing, they actually *want* to do this.
I love them.
Posted on 2/13/16 at 12:22 pm to blackoutdore
quote:
seen articles where some companies are looking at different items other than your current credit history to either replace or supplement their current models.
Mortgages are by law/regulations required to use FICO scores. It my supplement but credit scores for major lending decisions are here to stay for awhole
Posted on 2/13/16 at 12:28 pm to GenesChin
Thank you
Not all FICO scores were created the same
quote:
GenesChin
Not all FICO scores were created the same
This post was edited on 2/13/16 at 12:30 pm
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