How Credit Scores Work

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Understanding how credit scores are calculated can greatly help you protect your credit.  Here are a couple articles that review how the FICO score is determined.

How Credit Scores Work

We depend on credit for so many important things in life — whether it’s for buying a car, house or computer or getting a student loan. A three-digit number — your credit score — can determine whether you can do these things and even how much it will cost you.

How can a simple number determine whether you can buy a house or car? If you’ve read How Credit Reports Work, you know that your credit report contains a history of how you’ve paid your bills, how much open credit you have, and anything else that would affect your creditworthiness. Your credit score boils down all of that information to a three-digit number. Using the credit score, lenders can predict with some accuracy how likely the borrower is to repay a loan and make payments on time. It’s how electronics and department stores can offer instant credit.

This incredibly important number, which affects how much you pay for credit, insurance and other life necessities, used to be hidden from consumers. Until recently, only lenders and other businesses that used the score could access it. Fair Isaac and Company, which developed the score, felt that the score would only confuse consumers since there was nothing to tell them what it meant or what lenders were looking for.    –more

The New Math of FICO Credit Scores

Those with small blemishes on their record should benefit from the FICO 08 scoring change, while high-risk borrowers and those who “piggyback” are the likely losers.

Even the most responsible borrowers slip up sometimes.

Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used.

With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness.

Under the updated scoring model, called FICO 08, small missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score.    –more

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