About Credit Scores
Whether securing a consumer loan, a mortgage or even an equipment lease, one thing remains certain- consumer credit scores will play a vital role in the type of terms that will be available for a prospective customer.
While TriLease doesn't offer credit advise, we feel its important for you to be informed. Therefore, we have provided an overview of how credit scores factor into the lending process.
Additional information is available online from the following sources:
- myFICO® Credit Education
- Experian Credit Education
- Equifax Learning Center
- TransUnion Credit Learning Center
What is a credit score and how is it derived?
Credit scores simply provide lenders with an overall basis for credit worthiness. Based upon the standards put in place by Fair Isaac & Co., in addition to the number of credit inquiries on a report, there are five primary factors that play a role in determining a credit score.
- Payment History - 35%
- Amount of outstanding debt - 30%
- Type of outstanding debt - 10%
- Amount of recently established debt - 10%
- Length of credit history - 15%
The formula for the Fair Isaac model deals with financial information only and does not consider factors such as place of residence, age, race, sex or nationality.
Where do credit scores originate?
It is important to note that credit scores are not determined by any lending institution. Instead, credit scores are determined by complex equations developed by the various credit reporting agencies. These agencies may vary, but the formulas for calculating credits scores tend to be very similar. One of the best known credit reporting agencies is Fair Isaac & Co. of San Rafael, California. It is estimated that nearly 75% of companies rely upon Fair Isaac when determining credit worthiness.
How does the process work?
Think of the process as a circle. Lending institutions(with the exception of equipment leasing lenders) generally report to most of the major credit reporting agencies information regarding the payment history of its customers. This information is then noted and a score is derived. As a consumer requests credit terms, lenders will inquire and "pull the credit report" of the consumer. And that information is then read and a credit decision is made based upon the information processed. And the cycle continues.
What does the score mean?
Scores range from 300 to 900. On a simple scale, the higher the score, the more likely a loan or lease will be approved. And the more likely the approval will be with preferred terms. Generally speaking, a score at 640 or higher is considered favorable. Scores that fall below 640 tend to be less than ideal. It is important to note that, 640 is a general consensus point for most lenders. Scores that fall below 640 can still be approved. Likewise, scores that range above 640 may still be declined. Generally, individuals with scores in the low 600's or below may have difficulty securing lending. Individuals with scores in the high 600's or above will generally have more lending options available.
How does a consumer correct information that may be inaccurate?
If you identify inaccurate information, contact both the credit bureau and the organization that reported the information to the bureau.
Contacts should be made in writing informing both parties of the inaccurate information and should include copies, not originals, of any documenation that supports your position.
Once received, both parties are responsible for investigating disputes under the Fair Credit Reporting Act. This process can take between 30-90 days.