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What Consumers Do Not Know About Their Credit Score

By Sally Maison
Published: Saturday, September 26th, 2009

Two individuals who miss out on the same bill will not get the same deduction on their scores. This is because the scoring methods of the credit bureaus are more complicated than most people think.

What Consumers Do Not Know About Their Credit ScoreCredit bureaus, otherwise known as credit reporting agencies (CRAs), use “score cards” in determining the creditworthiness of a person. A score card is a peer group where consumers who have similar debt standing are grouped together. For instance, a person who pays his bills on time and has a very low balance will be grouped with other “excellent” debtors. However, he became jobless and filed bankruptcy a few months later since he can no longer finance his home. He will then move to the group of people who have bankruptcy in their accounts.

There is also a group for people who have thin credit lines. These consumers have very new credit histories and little information is available about how they manage their debts. This group includes newlyweds, recent graduates, and students who are already cardholders.

A person is never told when he is moved from one peer group to another. This information is kept solely by the credit bureaus or agencies despite its huge effects on a person’s credit score.
Strangely enough, moving from a bankruptcy peer group to a better score card group does not always affect a score positively. This is because the new peer group could have a tougher scoring model than the previous one.

On the other hand, Fair Isaac Company (FICO) uses 12 scoring cards in computing the creditworthiness of a person. Previously, the company only used 10 peer groups. However, FICO only disclosed three: bankruptcy, thin credit files, and aging of credit histories.

Consumers should also know that not all peer groupings have the same score range. The FICO model has a scoring range that is from 350 to 850. However, it is impossible for people who have bankruptcy in their accounts to reach a score of 850. The different CRAs also have their own scoring methods, which mean that a person is expected to have three different scores.

Since people can do nothing about their peer grouping, credit specialists advice consumers or clients to focus on their debt management instead. Finance experts say that keeping debt to credit ratio is one of the most effective ways to improve ratings. The trick: spreading debts on different credit cards. Consumers are also advised to do more research and to keep searching for new methods to improve their rating or credit standing.

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