The Credit Score is omnipresent and is critical to every consumer’s life. You’d be surprised at just how many times on a weekly basis someone is checking your credit score to determine your credit worthiness or evaluate your character for integrity.  Purchases like mobile phones, cable TV service, etc will view your score to determine if you are an acceptable risk for them to do business with.  That’s why it is paramount that you understand this often misinformed area of Credit Scoring.

Simple obscure things such as obtaining student loans or when you apply for a checking account and then acquiring overdraft protection and even if you have a secured credit card or a secured bank loan, all of these and more can effect your credit score.

The most prominently used credit scoring system in use today by far is known as FICO (i.e., Fair Isaac Credit Company or Organization).  The FICO scoring system is based on the theory of predictive analysis.  FICO has designed and implemented algorithms that produce its predictive analysis of a consumer’s ostensible credit worthiness within a range of numbers between 300-850 where the lowest number represents the worst and the highest number, 800, the exemplary.

Each of the three major credit bureaus – Experian, Equifax and, TransUnion – will produce a different FICO score for a consumer. Because all creditors do not subscribe to the same credit bureaus.  In other words, there is no requirement that creditors, retailers and, banks etc report to all three major credit bureaus concerning their customer’s payment history. Therefore, because there is different payment historical data being reported to different credit bureaus by different subscribing creditors the score generated will be different for a consumer across all three bureaus. The proprietary formula used by FICO to determine the score of each bureau remains the same however and is why the scores between all three bureaus are generally similar and will not differ drastically.

The FICO credit scoring system is vast and complex. There are many models in use throughout the many different industries within commerce. However, in this writing will not delve into advanced explanations but will save it for a future post.

Below is a breakdown, generally of what is used to determine FICO scores and their percentage weight. There are five elements or components that comprise all FICO scores:

• Your historical payment record (35%)
• Your Amount owed (30%)
• The Overall Aggregate Age of Your Credit History (15%)
• Credit Inquiries Within Last 0-9 Months (10%)
• Your Mix of Different Types of Credit Accounts  (10%)

So, as clearly seen in the above bullet points the major components that determine the overall score are listed and prioritized in order of importance and use. The most important factor is your payment history, but a close second is your overall credit utilization.  Credit utilization is the aggregate or overall amount of credit you are currently using in relation to the total amount of credit that is available to you. In other words, credit utilization is the total amount of extended credit currently being used by a consumer.

Obviously, the way that you pay your bills is the most important data to creditors because it will reveal if you are likely to pay back whatever amount is extended to you in credit.  If you falter with paying your bills timely then you’ll have less chances of having credit extended to you while those who keep a good track record have a high degree of available credit offered to them.

Having a FICO credit score above 700 is considered to be “excellent” and consumers who maintain such a high score are offered many perks.  Those consumers having an excellent credit score can also expect the best interest rates on mortgages, automobile loans, credit cards, etc. Likewise, those having a score below 700 but above 600 can expect interest rates, although competitive, higher, therefore, more expensive.  Finally, consumers who have a credit score of 600 or below are usually left with mere crumbs which materialize in the form of subprime loans and very high interest rates because they are considered high risk due primarily to their payment history and the other components outlined above.

Finally, while shopping around on the internet it’s important to understand that not all credit scores are created equal. Meaning, there are many credit monitoring sites and credit related sites that offer credit scores, either free or paid, but do not provide the FICO score.  Other proprietary scoring models that are not FICO are referred to as “FAKO scores”.  Among some of the non-FICO or “FAKO” scores include VantageScore 3.0 and an Experian National Equivalency Score and a host of other proprietary non-FICO scoring systems.

The good thing about all of this is that consumers are able to improve their score with legal methods, many of which are deployed by the team of professionals at LoftyCredit.com.  One thing that can be done to effectively improve your score is to reduce your debt in any way possible.  If you can pay down your debt to reduce it that is the best way. However, raising the credit limit can also achieve the same or better results for raising your credit score and makes your credit profile stronger.  This business of credit scoring, in general, is a very complex field of understanding and it takes a lot of time to understand fully.  Stay tuned because in a future article, we shall tackle more advanced topics within this crowded cryptic area and with an even more detailed eye. Because it is only with more knowledge that we consumers can even stand a chance on the battlefield of commerce.