What is a credit score?
A credit score is a numerical rating designed to measure and help predict the likelihood that a person will pay their bills late sometime in the future. A credit score is generated by a mathematical formula that looks at the way a person has paid the credit accounts contained in their credit report, and compares the payment history to millions of other people. Credit scores are not static. A credit score is based on the information that is contained in a credit file at the moment the score is requested. When something changes in the credit file the score changes to reflect the new information.
Is there more than one credit score?
There are hundreds of credit scores. One of the most common misunderstandings about credit scores is that there is only one credit score. There are many different credit scores used by lenders, banks, credit card companies, service providers and even insurance companies. The most commonly known credit score is the Fair Isaac Company* (FICO*) model used by Equifax*, Experian* and TransUnion*. Each bureau has its own version of the FICO score, but the most common FICO Score® sold by the three major credit bureaus is FICO Score® 8. This model has been available since 2008 and includes the ability to include your phone, internet and utility accounts in the calculation of the credit score. FICO Score® 9 became available in 2013 and includes your rental payment in the calculation of the score. It’s very important to understand that this information is only included in your score if it is scored in the core credit file that is used to create your FICO Score® 8 or FICO Score® 9. If your information is stored in a separate data base at the credit bureau, it will probably not be used in the calculation.
These scores are the credit scores that are most commonly used by banks, credit card issuers, and most types of financial institutions, as well as most service providers and many property management companies. Mortgages use an older version of the FICO Score® which does not include your phone, internet and utility accounts in the calculation of your credit score.
Some financial institutions and CRA’s have developed other proprietary scores, and the three bureaus have also jointly developed a shared scoring model called the VantageScore*. The VantageScore is very popular with financial institutions that offer unsecured products like credit cards, personal loans, student loans and auto loans.
Who calculates credit scores?
Credit bureau scores such as the FICO score are calculated by the bureau that houses the credit data, at the time the score is requested. Lenders and other users of credit scores will receive the score along with the credit report when they access a consumer’s credit bureau file. Credit scores are not permanent or static. Because a consumer’s credit file is continually being updated by their various creditors, the score is ever changing, and could be completely different if pulled just hours apart if information related to the consumer’s credit information is updated within that time frame.
Does everyone have a credit score?
Because not everyone has a credit file with the national credit bureaus, not everyone will have a FICO credit score. In order to have a FICO score an individual must have at least one active credit or debt based account reported to the national credit bureaus within the prior 6 months. Individuals who have not developed the type of credit accounts that are reported to the national credit bureaus do not have a credit report and do not have a FICO credit score.
Other people who typically do not have a credit score are young individuals who have not had an opportunity or a need to develop credit, students, divorced or widowed individuals whose spouse handled all the family finances, recent immigrants, individuals who have had previous credit problems and have not reestablished a credit profile, individuals who deal in cash only, and individuals who have made a conscious decision to lead a debt free life.
However, most adults in the U.S. pay monthly bill like phone, internet and utility bills. even though they have not established a credit history that is reported to the national credit bureaus. These types of monthly expenses or bill payment accounts, are called “Alternative Credit.” eCredable empowers you to have this information reported to participating National Consumer Reporting Agencies (NCRAs) to impact your FICO Score® 8 (and newer) and VantageScore® 3 (and newer) credit scores.
Why don’t I have a credit score?
Credit scoring models cannot generate a score if there are not enough “qualified” credit accounts. Traditional credit scores require at least one active account, reported to the national credit bureaus within the prior six months (qualified credit account). If you do not have qualified credit accounts that are being reported to the national credit bureaus, or if you have a file at the bureaus with old or inactive accounts (commonly called a “thin” credit file), you may not have a credit score.
However, if you pay monthly or regular bills such as phone, internet and utilities, you have what is called “Alternative Credit” and could have a “Credit Score” by allowing eCredable to report this information to participating NCRAs on your behalf.
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