Your credit score is a three-digit number that relates to how likely you will repay the debt on time. Lenders, including mortgage lenders, use your score to approve, or not, a loan and establish a specific interest rate for that loan.
There are credit bureaus and there are credit scoring models. Le’ts talk about scoring models first.
Score Models
The purpose of the scoring models is to give lenders flexibility and predictive power to make more precise lending decisions.
The most well-known credit score model is the one provided by FICO, Fair Isaac Corporation. They developed and sold their first credit scoring system in 1958.
From that time, they have created new versions (products) of their Fico Scores. The last version is the FICO 10 Series issued in January 2020. FICO provides specific credit scores for Credit Card companies, Auto Lending, and Mortgage Lending, among others.
Another scoring model is VantageScore right now in their 4.0 version. VantageScore can score millions of more people than other models by incorporating up to 24 months of past credit activity – including utility and rent payments where available – which could open up more credit options to you.
Regularly credit scores are calculated using many different pieces of credit data in your credit report. This data is grouped into categories like:
• Payment history
• Credit Utilization
• Credit Age
• Different Type of Credits
• Number of Inquiries
The importance of these categories in the final score may vary from one person to another, and from one score model to another. Credit Scores consider all information, positive and negative, in your credit report. Late payments will lower your credit scores. Establishing or re-establishing a good track record of on-time payments will raise your credit score.
Credit Bureaus
There are three main credit bureaus – Equifax, Experian, and TransUnion – create your personal credit reports. They use the score models to create credit reports. These bureaus can also calculate scores for you based on their own proprietary models.
One reason these three bureaus bring different credit scores is due to your lenders might not report to all three credit bureaus or report updates to them at different times. Some lenders may only report to one or two bureaus only (or none at all).
New 2020 Scores
In January 2020, FICO released its new versions FICO Score 10 and FICO Score 10 T. The new models will treat late payments and debt more severely, but will also now consider 30 months of historical information about your credit card balances and payment amounts.
FICO® Score 10 delivers increased predictive power and still includes standard FICO reason codes, a similar odds-to-score relationship as prior versions and consistent score ranges.
FICO® Score 10 T incorporates trended credit bureau data. Different than traditional credit bureau data, the use of trended data considers a historical view of data such as account balances for the previous 24+ months, giving lenders more insight into how individuals are managing their credit.
Based on CBS Eye on Money report, 110 million consumers will see scores change less than 20 points. Another 80 million consumers will see scores change over 20 points. Half of them will have an increase, the other half a reduction in their credit score. Those extending their credit to the limit and not paying on time will feel a reduction in their credit score.
We need to consider that when a new score model has released in the market, each lender determines if and when it will upgrade to the latest version. Some lenders make the upgrade quickly, while others may take longer.
Where to find my FICO Score?
The three nationwide credit reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. The law allows you to order one free copy of your report from each of the nationwide credit reporting companies every 12 months.
To order your free credit report, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
Do not contact the three nationwide credit reporting companies individually. They are providing free annual credit reports only through any of the above options.
How to estimate your FICO credit score?
Fico provides an option where you can estimate your FICO credit score through a quick and anonymous test. If you want to try yourself click here. Remember to keep your credit in a good stand before applying for a loan. You have the chance to ask for these free credit reports or estimate it by yourself and if you find something that may need correction or update, feel free to contact the credit bureaus.
Disputing Errors in your Credit Reports
The credit reports issued by the Credit Bureaus might have inaccuracies or old information. The reports might show wrong personal information, accounts that don’t belong to you or have been already closed, missing accounts, incorrect public records, delinquencies or derogatory marks, fraudulent activity, incorrect inquiries among others.
The best way to dispute errors found in your credit reports is by contacting the vendor who reports the error and also the credit bureau who issued the report to proceed with the correct the mistake.
Experian Disputes
Online process click here
By phone: 800-916-8800
By mail: Experian
P.O. Box 4500
Allen, TX 75013
Equifax Disputes
Online process click here
By phone: 866-349-5191
By mail: Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374-0256
TransUnion Disputes
Online process click here
By phone: 800-916-8800
By mail: TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000
You should also contact the lender or creditor that issued the account to let them know of your dispute and the inaccuracy.
Sources:
https://www.creditkarma.com/credit-scores/
https://fico.gcs-web.com/news-releases/news-release-details/fico-introduces-new-fico-score-10-suite
https://www.consumer.ftc.gov/articles/0155-free-credit-reports