There are things around us that we can buy but we need a large amount of money to buy it. A lot of consumers depend on credit so that they could buy these expensive things. Since people need credit, there is a term called “credit scores” and this is represented by 3 digits.
So what are credit scores and how does it work? Credit scores are represented by the 3 digits assigned to you and within these 3 digits would be a credit report that would determine your credit score or your capability to purchase something. Credit scores in simple English is your status if a lender would provide you with the financial backup that you need in purchasing something. Back in 2001, credit scores are not even visible to consumers but this all changed when the US congress and industry pressured the government to allow consumers to see their credit scores.
How does Credit Scores work? It all starts with the breakdown and this method of breaking down details for the credit report started in the early 1980’s. There are several scoring methods but most of the credit scores of consumers are scored using the FICO (Fair Isaac Corporation) method. The 3 major credit bureaus namely Experian, Equifax and TransUnion collaborated with Fair Isaac to come up with this new scoring method which is applicable today. This method that is applied today consists of the following.
The credit bureaus breakdown all that is listed under your credit report which are the history of your paid bills, the credits you have left and other credit listings that would affect your creditworthiness. When everything that affects your credit score has been broken down, this is when you will know whether you have a good credit score or a bad credit score. The data that these bureaus breakdown is called the credit report and this credit report is the data that credit monitoring service providers collect to help you out manage your credits.
To easily understand more about credit scores, just think about it as your grade in school. In a school you can have a grade of A+, A, B etc. wherein for credit scores your grade or capacity to use credit will be determined by 3 numbers which would range between 300 to 850. The method or formula of computing your credit score will not be revealed but you can still have an idea with the help of credit reports and credit monitoring service providers.
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