When a professional credit advisor starts going on about the details of credit reports and credit scores, most of us forget whatever they’ve said by the time we walk out of the room. The same can be said about any subject the average person isn’t already an expert in. This is why we’ve created this section.
Over the next several weeks, we’re going to take those who know nothing about the world of credit scores and credit reports and make it easy to understand. Don’t’ get us wrong, this is still going to be boring, but at least you’re going to be able to understand why you have the credit score you have.
First up, the ever ambiguous, obnoxious, dreaded, fluctuating… Credit Score. How in Great Odin’s Beard do they come up with it?
This is actually a rather difficult question to answer, which is why we picked it first, because we like torturing ourselves…
- To begin with, a common misconception is that the three big credit bureaus (Equifax, Experian, and TransUnion) are the evil corporations who determine your credit score. This is not the case. The bureaus merely compile your credit history. Your actual score is determined/evaluated by companies like FICO and VantageScore Solutions. Want to know their complicated formula for taking all of that compiled data and squeezing out what will be your credit score? So would everyone else. Unfortunately, these companies consider these formulas and algorithms to be proprietary information. This means they aren’t required to disclose how they determine your score.
- Studies done by people who are really good at math have been able to break down (to within one or two points) how your credit score is calculated. Now, this is where it starts to get a little wonky: Your score is calculated based on a huge number of factors. To try and make it a little easier, your actual credit comes down to two kinds, Revolving Credit and Installment Credit. The easy way to keep them straight – Revolving Credit is mainly credit cards, while Installment Credit is typically a big-ticket item (like a car) that has a fixed, monthly payment for a specific number of months. There are also Mortgages but they act as a bit of a different animal. They take all of your reported credit history – the balances, the late payments, any bankruptcies or tax liens, etc. etc. and then use that whole gaggle of numbers and information to determine your credit worthiness.
This is why it’s important to have experts on your side; experts who know how to read your credit report and the factors responsible for your current credit score. This is where Continental Credit comes in. All of this confusing jargon and legal mumbo-jumbo – we’re actually experts in all of this. We know how to maximize your credit score because we actually do know all of this stuff. If you’d like to know more and become an expert yourself, give us a call!