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The Importance of Credit Score Facts is Known by Many. People Today Are Labeled According to Their Financial History & Credit Only Benefits Wealthy Elites.

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Perhaps the most important of credit score facts is that the credit score, in the United States, is a number representing the creditworthiness of a person, or the likelihood that person will pay his debts.

A low credit score means high interest rates.

A credit score is primarily based on a statistical analysis of a person’s credit report information, typically from the three major American credit bureaus: Equifax, Experian, and TransUnion.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.

Using credit scores, lenders determine who qualifies for a loan, at what interest rate, and to what credit limits.

The Fair Isaac corporation created the first credit scoring system in 1958, for American Investments, and the first credit scoring system for a bank credit card in 1970, for American Bank and Trust.

Each of the three credit bureaus may have different information about any particular person, and there are many different credit scoring models in use, which means a person may have several different credit scores simultaneously.

Many lenders use third-party credit scoring systems, such as Fair Isaac’s FICO scoring model, NextGen, VantageScore, and the CE Score, to evaluate the creditworthiness of a borrower.

Because credit score facts say that it does not consider race, sex or ethnicity, it is generally considered to be the most fair and objective underwriting tool available to lenders.

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What is Your Worth?

Most scores use a multiple-scorecard design.

Each version may use individual scorecards which some may say is unfair in reference to credit score facts and what may be true for some is not the case for everyone.

Typically, a given borrower is compared with other consumers; e.g., a borrower with two 30-day late payments will be scored against a similar delinquent-payer population.

The borrower then is graded according to the risk-determining mathematical variables used by the scoring model, ranking him or her within the group of similar borrowers.

Most large banks build and use their own proprietary statistical credit-scoring models, often in conjunction with third-party scoring models.

The statistical models for generating credit scores are subject to federal regulation.

The Federal Reserve Board’s Regulation B (implementing the Equal Credit Opportunity Act), expressly prohibits a credit-scoring model considering ”prohibited biases” such as race, religion, national origin, sex, and marital status.

It also states that credit-scoring models must be empirical and statistically sound.

Furthermore, if negative action results from a credit score (i.e. a denied application for credit), the lender must state to the borrower the specific reasons for the denial.

A statement that the person ”failed to score high enough” is insufficient; the reasons must be specific (i.e. ‘too many delinquencies of 60 days or greater’).

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Identity Theft Recovery

There are several generally-accepted algorithms for estimating the primary factors generating a low credit score which may influence credit score facts from person to person.

Typically, one or more of these algorithms is used to list reasons for when a loan applicant is denied credit, in satisfaction of the Regulation B requirement that specific reasons be given to the applicant.

These reasons are often specified using a reason code that is more-or-less standardized across scoring models.

Since the Fair Isaac provides the dominant scoring method; non-Fair-Isaac scores often mimic FICO scores (and are frequently derisively referred to as ”FAKO” scores).

Although not as widely used, these scores (e.g. TransUnion’s ”TransRisk”, Experian’s ”ScoreX”, and ”PLUS” scores), are less expensive to buy than is the FICO score.

The business cost savings of buying and using non-FICO scores is financially tempting to some banks and credit card companies to use, as they need accurate risk assessment of millions of accounts.

The Fair Isaac Corp. offers scoring models for the U.S., Canada, and South Africa, and offers a Global FICO score for other countries.

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