Credit Score Basics and the New Credit Score System

What is a Credit Score Report?


One of the first steps in repairing or improving your credit score is to find out what your current credit report looks like. A credit report is a detailed report generated by a credit bureau for a prospective lender. This report includes an individuals debts and the timeliness of their repayment, employment and residence history, any judgements, tax liens, or bankruptcies. Based on this information, a credit score is determined which is a number from 400 for a low score and 900 for a high score. Credit scores are used by lenders to determine if you qualify for a loan or service. The lenders use these scores to estimate the amount of risk they maybe exposed to by providing you with their services. Basically the higher your score the less risk you represent to the lender.



Where can you get a Free Credit Report?


A Central Source has been setup for you to request the free reports. You can contact the Central Source at: www.AnnualCreditReport.com or by calling 1-877-FACTACT. The Central Source makes the reports available to certain parts of the country during certain times of the year.


Also, there are three nationwide consumer credit reporting companies where you can purchase a copy of your credit score report. These are:


Equifax - www.equifax.com

Experian - www.experian.com

TransUnion - www.transunion.com



It's a good idea to purchase the Credit Score Report along with the free Credit File Disclosure report to get an overall picture of your credit profile.


New Credit Scoring System


A new credit scoring system called "VantageScore" has been designed to make it easier for financial institutions to assess loan applications and also give consumers an easier way of measuring their credit worthiness.


The three credit agencies each have been using their own formulas to generate their own credit scores, so lenders would have to reconcile three different scores when dealing with a consumer's application for credit.


Now, using this new system, only one formula is used to create the scores for all three credit bureaus, so the scores will be virtually the same. This will provide a highly consistent score that is easy to understand. The scores will range from 501 to 990. The high end is slightly higher than scores currently in use. The scores will be grouped in a way similar to academic grades. For example:


A -- 901-990


B -- 801-900


C -- 701-800


D -- 601-700


F -- 501-600



The new score is expected to reduce the fluctuation in a consumer's scores by an estimate of 30 percent compared with the old method.