There is confusion about the term "credit rating" but banks and lenders view the "Credit Score" to determine credit rating. Credit scores are provided by organizations that sell the results of their mathematical calculation to lenders considering the extension of credit.
In most instances the term "Credit Rating" had a subjective meaning to consumers: "how is your credit rating" Good; bad; perfect; I guess its good; pretty good; okay. While the term Credit Rating was almost universally taken by lenders to mean the objective and specific "Credit Score".
Credit Score is a lenders way of determining the credit rating. The credit score is supposed to reflect the reputation for repaying debts on time. The better (higher) the credit score, the more willing companies and people will be to lend you money, issue you a credit card, rent a house or apartment to you, hire you, or provide services to you on favorable terms.
Credit Scoring is a mathematical computation performed by companies that charge for their services. The most common score is provided by The Fair Isaac Corporation and is generally known as the FICO score. Other scoring models exist but the industry seems to have embraced the FICO score as the score of reference when discussing Credit Score. FICO scores are related as a number between 300 and 850 with the higher the score indicating the better credit rating.
An often-asked question is "What can I do to improve my score"? We found many people ready to volunteer answers to this question but logically without knowing the mathematical formula, there is no way to conclusively determine what improves the score. The scoring model used by The Fair Isaac Corporation is a trade secret. The scores are The Fair Isaac Corporation's core product and despite some consumer backlash, there does not seem to be any reason to believe that the mathematical model will ever be divulged.
With this in mind we were able to learn the types of information used to determine the credit score and the types of information NOT used to determine the credit score:
Information used to determine the credit score:
- Payment history.
- Amount owed.
- Length of credit history.
- New credit.
- Types of credit in use.
Information NOT used to determine the credit score:
- Your race, color, religion, national origin, sex, or marital status.
- Your age.
- Your salary, occupation, title, employer, date employed, or employment history.
- Where you live.
- Any interest rate being charged on a particular credit card or other account.
- Certain types of inquiries (such as promotional, account review, insurance or employment-related inquiries).
- Credit counseling.
- Any information not found in your credit report.
- Any information that is not proven to be predictive of future credit performance.
