
You won’t need a good score to get an online title loan in Texas, or anywhere else, for that matter. However, credit scores in general are a crucial component of every adult’s financial life. Traditional lending institutions look at them, as do most apartment rental companies and even some employers. But how much do you know about these numbers called credit scores? Here are the basics.
Explain Credit Score
This is a numerical figure that essentially gives creditors and others an idea of how risky it is to do business with you. It also gives you a better understanding of your credit health overall.
Scoring models are trained to assess a credit report from either Experian, Equifax, or TransUnion – the three consumer credit bureaus. These models calculate your scores, which mostly range from 300 to 850. The higher the score, the less likely the consumer is expected to miss payments. Note that each bureau issues its own number, which can vary somewhat from the other numbers.
How Lenders Use Credit Scores
Lenders use credit scores to assess risk. They also use them to automate credit decisions. Have you ever received pre-approved credit card offers? They were generated by your score and other requirements.
Your scores will also be checked whenever you apply for new plastic. Not only are they used to approve or turn down applications, but they play a role in the establishment of interest rates and credit limits.
Even if you’re approved for a new credit card, the card issuer may monitor your scores. Score changes could result in the company offering you additional credit card accounts, altering your credit limit, or sending you promotional offers.
Mortgage, personal loan, and auto lenders use credit scores in similar fashion.
FICO and VantageScore
Credit scores from FICO and VantageScore are commonly used by many scoring companies. While most of their credit scores employ the same underlying info for predictions, there are differences.
For example, FICO ignores hard inquiries from the previous 30 days, while VantageScore counts multiple such inquiries from a two-week period as one. Also, FICO scores range from 300 to 850. However, it also creates industry-specific scores for credit card issuers and auto lenders. They range from 250 to 900. On the other hand, VantageScore’s scoring range is exclusively 300 to 850.
Note that some lenders create their own scores which might, in addition to what’s on your credit report, consider internal data the company has about you.
Credit Score Calculation
There are a number of factors that affect your credit scores, including:
- Your payment history. Comprising 35% of your score, this is the No. 1 factor in your FICO score. It looks at whether you’ve made your payments on time or have had missed payments. Your scores can also be affected by how far you’ve fallen behind on delinquent accounts. Collection accounts or bankruptcy filings are also related to your payment history.
- The amount you owe. Your overall debt load is also a key factor in your credit card calculation, making up 30% of your FICO score. The number of accounts you have with balances, and whether those balances have gone up or down, may also be considered. Lenders also want to check your credit utilization rate. The lower, the better.
- Your credit history. Lenders like to see a lengthy history with credit, since that tells them how long you’ve been managing credit accounts. This history accounts for 15% of your FICO score.
- Your credit mix. It can help your credit scores to have revolving as well as installment credit accounts, as credit mix accounts for 10% of your FICO score. Having an auto loan or mortgage can also help here.
- New credit application. Your recent credit activity is also factored in and makes up 10% of your FICO score. When you apply for new credit, that triggers a hard inquiry, in which your credit is checked before a decision is made. New hard inquiries can temporarily hurt your credit, but not by much.
Your credit scores are a big part of the way in which you’re perceived by lenders and more. That’s why it’s important to understand the basics so that you can better prepare for borrowing opportunities.
It’s also important to remember that, if your current scores aren’t that great, you can still get a car title loan with LoanMart.