Credit Score Scale

Credit Score Scale

Your credit score will tell lenders how likely you are going to pay your bills. As such, the credit score becomes their basis whether they should approve your credit application or not. That is why it is extremely important that you keep tabs of your credit score scales. The better your score, the higher chance you have of getting approved for a loan and the better interest rates the lender is willing to offer. Whereas, the lower your score, the more likely you won't get approved for a loan.

How are Credit Score Scales Calculated?

Credit score scales are calculated through a complex mathematical algorithm using factors generally involved in making credit decisions. These factors include payment history, credit history, credit available, existing or current debts, bankruptcies if any, among others.

Who Evaluates Your Credit?

The top three credit bureaus that report credit score scales to banks and other lending institutions are Experian, Equifax, and Trans Union. All three are private companies that assign value to your credit rating based on information found in your credit report. The factors used to calculate the scores are basically the same. However, since these companies use their own unique system of credit score scales, your credit scores and reports may vary from company to company.

Moreover, some lenders do not rely solely on the credit score scales released by these three credit bureaus. They may have their own system of analyzing future credit performance that affect how they are going to approve your credit application with them.

The First Credit Score Scale

Regardless, the most common credit score scale system used (and the first ever) by credit reporting agencies is the FICO score, developed by Fair Isaac Corp. The FICO score has a credit score scale of 300-850 with 720 and above considered as -good scores- - meaning, credit worthy. However, this does not mean that those who are scoring below 720 have no chance of getting credit, since lenders may still approve credits even if the applicants have low credit scores.

Why Credit Score Scales are Important

Credit score scales make it easier for lenders to make fast decisions concerning loan approvals. Since the scores represent the most precise information they need, they can make accurate decisions based on these scores much faster.

Faster loan approval process benefits the consumer. Because lenders will spend less time mulling over one application, they can accept more applications for credits and approve more people. Of course, your chances of getting approved for a loan or a mortgage are dependent on whether you have a good credit score scale. Many lenders will charge higher interest rates if your credit score is lower than average.