Information For Credit Rating, Credit Reports and Credit Scores

The world of credit can be confusing at times. You have probably heard about the different credit terms like credit scores, credit reports and credit rating.

Let's take a look at the definitions for the terms credit rating, credit reports, and credit scores to see what they actually mean.

Did you know that the Fair Trade Reporting Act (FCRA) requires each of the 3 nationwide consumer rating companies to provide you with a FREE copy of your credit report, at your request, once every 12 months? 

We provide you the information and links to help you make sense of your credit history.

Credit Rating - A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. A credit rating tells a lender or investor the probability of the subject being able to pay back a loan.

A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.

Credit Report - A credit report includes information on where you live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your credit report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies - Equifax, Experian, and TransUnion - to provide you with a free copy of your credit report, at your request, once every 12 months.

The Federal Trade Commission (FTC), the nation's consumer protection agency, has prepared a brochure, Your Access to Free Credit Reports, explaining your rights under the FCRA and how to order a free annual credit report.

A Warning About "Imposter" Sites
The FTC advises consumers who order their free annual credit reports online to be sure to correctly spell annualcreditreport.com, or link to it from the FTC's website to avoid being misdirected to other websites that offer supposedly free reports,but only with the purchase of other products.

While consumers may be offered additional products or services while on the authorized website, they are not required to make a purchase to receive their free annual credit reports.

Credit Score - A credit score is a complex mathematical model that evaluates many types of information in a credit file. A credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service.

Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service –– specifically, the likelihood that the person will make payments on time in the next two to three years. Generally, the higher the score, the less risk the person represents.

FICO is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and refers to the best-known credit score model in the United States, which is calculated using mathematical formula developed by this company.

The FICO score is primarily used in the consumer banking and credit industry.

A FICO score generally ranges from 300 to 850. It exhibits a left-skewed distribution with a US median around 725. 660 is generally regarded as potentially sub-prime and represents an important break point for credit worthiness.

The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies hold their own, independent databases. These databases are independent of each other and may contain entirely different data.

Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

A new Vantage score has been offered by all three credit bureaus to creditors since spring 2006. It will soon be available to debtors. Its range is from 501 to 990. It is graded A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600). It remains to be seen whether the Vantage Score will replace the FICO score or even be accepted by many creditors.

The three major credit reporting agencies in the United States, (Equifax, Experian and TransUnion) calculate their own credit scores, which go by different trademark names as well as many different versions of the score:

Beacon, Beacon 5.0, Beacon 96, and Pinnacle are all available only from Equifax;

Empirica, Empirica Auto 95, Precision Score, and Precision 03 at TransUnion;

Fair Isaac Risk Score at Experian.

These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

How can you get your credit score?
You can purchase a credit score by contacting one of the nationwide consumer credit reporting companies:
Equifax
Experian
TransUnion