Who calculates your credit scores? First, it may be helpful to know "what" calculates your credit score. The answer is a mathematical formula or system. The calculation or credit scoring procedure was developed and created back in 1956 by engineer Bill Fair and mathematician Earl Isaac. Their system gave birth to the company called Fair Isaac Corporation or FICO®, and the now well-known term "FICO score." Your "credit score" is, in effect, interchangeable with your "FICO score".
The primary function of the scoring system was to create a standard method by which lenders could arrive at consumers' credit scores accurately and fairly through the use of their credit report or history. Decades later, the FICO scoring system has proved itself to be the trusted industry standard. Hence, the main three consumer credit reporting agencies (also called credit bureaus) use the system religiously. They are:
By law, you are able to request your credit report from each of the three major credit reporting agencies for free in a 12 month period.
A fourth credit scoring agency exists which is smaller and less known than the other three called Innovis (also known as "CBCInnovis").
For proactive consumers who want to use additional credit sources to affect their credit score calculations for the good, there is a company named PRBC. Like the other four agencies, PRBC is a consumer credit reporting agency and an FCRA (Fair Credit Reporting Act) compliant national data repository, but it is different in two very important ways. First, individuals enroll themselves and second, they actively report to PRBC any history of non-debt payment.
PRBC offers consumers a means of building their positive credit score by calculating items such as rent, utilities, cable, telephone and insurance into their score. These items are not typically considered by the other four bureaus but can help establish, maintain and boost positive credit history and score.
Since lenders want to minimize risk as much as possible, they may arrive at credit scores through a range of practices. They may choose to obtain one or all credit reports from the various agencies in order to more accurately come up with your combined credit score. They do this to help them decide how good a credit score is or whether someone is financially trustworthy and deserving of a loan for such life stapes as a home, a car, a credit card or even employment and insurance.
In addition to credit bureaus, mortgage reporting companies are also in the business of calculating your credit score. By combining your credit reports and evaluating them with their own particular scoring system, they can then sell this score to lenders.
Lenders themselves have also been known to use their own credit scoring methods from your credit reports.
In order to produce your credit report and credit score the three major credit bureaus must collect and analyze information from any institution or person you may have had a financial relationship with. Over time that becomes a large amount of data to calculate.
Where do they find your history? Generally, they get it from lenders, utility companies, creditors, debt collection agencies and public records. Your credit report is distilled from all this information. Your credit score is condensed further from your credit report into a number. Your score is a prediction or estimate of how likely you are to be a good credit risk.
Since credit score calculations are complex, have many variables and come from numerous sources, consumer advocates recommend that you review your credits reports and scores often for accuracy. CreditScoreCenter.org can help monitor your credit scores on a regular basis so you can achieve the most accurate and best credit score.
