Calculate Credit Score - Beware Different Formulas And Ratings
By now there is a good chance you are aware that you can get your free annual credit report from one of the three major credit reporting agencies. If not, a quick search for "credit report" will give you more information on that topic. Far more often what consumers want to know is not their credit history, which hopefully they already know, but how to calculate credit score.
Your credit score is often what affects your loans, mortgages, and credit card rates. Determining what it is isn't so easy. The formula for doing so is proprietary to each of the major credit reporting agencies. There are several simulators available on the internet which can help you to calculate credit score.
Do not be alarmed if you purchase your credit score from three different sources and receive three different ratings. Since the formulas are proprietary, they are not all alike and so all three scores may have been calculated by different formulas. When Agency A calculate credit score they may weigh more heavily late payments than Agency B or vice versa.
Some agencies scores are more widely used in certain types of loans however. The Fair Isaac Corporation or FICO score for short is used most heavily by banks to determine the likelihood a potential borrower will default on a loan. A low FICO thus has the effect of a potential borrower having to pay higher interest rates or offer more collateral to secure a loan. FICO scores range between 300 and 850. If a web based simulator gives you a score between those numbers then there is a good chance it is using the FICO method. Sometimes other entities will create "copy cat" methods to calculate credit score which is often referred to derisively as a "FAKO" score. These so called FAKO scores are often cheaper to purchase and can be a good cost saving measure if accuracy is not an especially big concern. Finally, collection agencies can have an enormous impact on your credit score. Even a debt as low as $25 can lower your score by 100 points if paid late. Also having an exceedingly large number of credit cards can damage your report even if they are all paid off on time. This is because when a bank or agency goes to calculate credit score, one thing they will look for is the amount of credit available to you. If your income is only $30k annually but the combined credit limit of your credit cards is $60k, this will not look good to the bank.
Free Online Credit Scoring Report
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