Before getting approved for a loan, credit card, or other major financial expenditure, financial institutions have to assess the credit risk of an applicant. A credit score is a statistical expression based on credit history that is used to determine the creditworthiness of a person. Credit scores are very influential in what financial assistance options are available to us in life. High credit scores are valued by financial institutions and can score its holders easy credit approval and low interest rates. Bad credit scores, however, can follow you into other sectors. It is possible to be denied employment or a security clearance based on your poor credit history. In the case of loans, lenders rely on credit scores to establish loan qualification, interest rates, and credit limits.
Every bureau has its own method for calculating their credit scores. The most popular and reliable credit score is the FICO score, which was invented by the Fair Isaac Corporation in 1989. Its primary competitor is Vantagescore, which was created by the three major credit bureaus in 2006 as an alternative to FICO. FICO and Vantagescore are just two of over a 1,000 different credit scores.
How They’re Calculated
FICO uses financial data from credit bureaus amongst other information to generate its credit scores. The scale ranges between 300 and 850 and individuals with higher scores are viewed as trustworthy. For example, an individual with a score of 650 and above is deemed to be reliable and can easily secure a loan. Conversely, a score below 620 is regarded as poor and does not attract favorable offers.
Experian, Transunion, and Equifax are the most common credit bureaus in the United States that compile information to create reports. The FICO score formula, however, is based on five factors that include:
- Payment history – 35%
- Debt level – 30%
- Credit history – 15%
- New credit – 10%
- Credit mix – 10%
Vantagescore also uses information from the major credit bureaus to determine credit scores, and its scoring model is quite similar to that of FICO. It gives more weight to payment history, available credit has minimal impact, and its score range is generally the same as FICO.
Where They Differ
Where the two companies differ is the amount of time needed to earn a credit score. FICO requires that you have at least one account opened for six months or more and at least one account reported to the credit bureaus within the previous six months to get your scores. It is a longer waiting period. VantageScore, on the other hand, can provide people with credit scores by using just one month of history and one account reported within the previous 24 months. Although it is not guaranteed that they can generate a score faster, their process does involve a shorter time span.
Although FICO scores are commonly used by lenders, other credit scores such as VantageScore can also give you a good idea of where you stand. Lenders can choose between a variety of credit bureaus and criteria to determine your creditworthiness as an applicant, so expect your eligibility to fluctuate depending on the criteria that your lender bases its application process off of. No matter the type score used, higher is always better. Staying on top of your credit scores can help you determine where you stand and steps you can take to improve your credit health.
Western Shamrock Corporation does not make online loans. Any information submitted will be used for informational purposes only. Western Shamrock Corporation offers initial steps of the application process online only.
You must visit a branch location to complete your application.