A credit score is a three-digit number that ranges from 350 – 800. Everyone has a credit score. It’s an important number that lenders use to help determine an individual’s creditworthiness. The score is calculated based upon an individual’s past payment history and information. The manner that a person handles credit matters is reflected in the credit score. The number helps a lender determine if an individual will pay the loan or likely default. The higher the three-digit number, the better.
Credit plays an important role in our lives. Credit is necessary when making major purchases unless all of the money is readily available to pay the balance in full. This isn’t plausible for most people. Credit may impact a person’s monthly auto insurance rates and future employment opportunities. Many people devote extended time and effort to their credit. It’s worth that effort. Credit woes affect a person for as long as 7 years and create devastating consequences that cause denial or loans, mortgages, and adds stress to life.
Every individual receives a separate credit score from three major reporting bureaus. Experian, Equifax, and TransUnion are the three credit bureaus in which almost every reporting lender provides information. Lenders report payment information, inquiries, and other information to the bureaus. In turn, this generate a credit report and a credit score that lenders look at to determine if they’ll loan money or otherwise extend an offer to them. Credit scores may fluctuate from one credit bureau to the next.
Credit Score Worry
Often, individuals find themselves worried, confused, and oftentimes overwhelmed by the complexity that a credit score brings. A positive credit score offers the best freedom and flexibility in life. Credit scores frequently change. Something as simple as applying for a new line of credit with a new lender can impact the number. A good credit score today can fall into the ‘risky’ category with as much as one late payment tomorrow. Many people think of credit as a revolving door that can never completely close.
How Credit Score is Calculated
Exactly how often does a person’s personal credit score update? Most creditors make monthly reports to the major credit bureaus, however, each company reports data at different points in the month. The credit bureaus do not hold information hostage until a specific date. They update the credit report and credit score immediately upon receipt of the information. Thus, an individual’s credit score can essentially change at any time.
Not every company reports to every credit bureau. Some may report to only one or two, while others report to all three of the credit bureaus. The decision is made by each company. There is no special formulation that determines the number of credit bureaus the company reports to each month.
When Does a Credit Score Update?
Every time a new lender requests a credit report/credit score, the number updates. However, not every application a person completes is considered a ‘hard inquiry’ so may not always impact a credit score. A proprietary formula determines the overall score upon inquiry. The formulation the lender uses (FICO or VantageScore) determines an individual’s credit score. Scores fluctuate day by day and even hour to hour in some situations. Theoretically, a credit score can change numerous times throughout the day.
Factors that impact credit scores include:
– The scoring company used. FICO is the most common, although VantageScore is available. Although both companies calculate scores based on many of the same factors, they’re weighted differently, thus impacting the overall credit score.
– The credit bureau(s) the lender reports information. A lender may report to one, two or all three credit bureaus.
– The purpose of the score. Most scores range from 350 – 800 but some lenders use a specialty range. Mortgage lenders and car dealerships oftentimes use specialty scores.
– Paying on time is the best way to maintain a good credit score. Falling behind on just one payment can negatively impact a person’s credit score for as long as seven years. However, the more delinquent payments become, the more negative of an impact it causes to the credit score.
The amount of a credit line being used.
Credit Score Update Information
Staying on top of payments and getting back on track after delinquency is important since late payments dramatically affect credit reports and credit scores. Even when it seems improvement efforts aren’t paying off, they’re working behind the scenes to improve credit reports and scores.