It’s important to understand how to maintain your credit score so when it comes time for you to borrow money — for a home, car or to pay for college — you may qualify for the lowest possible interest rate.
Why Credit Is Important
In today’s world, credit is integrated into everyday life. It is borrowed money that you can use for purchases and then repay the funds back at an agreed-upon time.
- Services such as cable and telephone can be paid for on credit. For example, if you use phone or cable services for a month or two and then pay for them at the end of that period, you are receiving services on credit.
- Loans that allow you to buy a home, a vehicle, or anything else are also a type of credit.
- Credit cards offer what’s called a revolving line of credit: funds you can spend, pay off regularly and have access to again.
Many lenders and even some insurance companies make decisions and charge rates based on your credit score.
Understanding Credit Scores
Your credit score is a number calculated by credit bureaus to describe your creditworthiness.
A credit score is a “snapshot of an applicant’s potential risk at a particular point in time.” Scores fluctuate with time and changes in your credit performance, with the heaviest weight being given to your most recent credit activities. Past credit problems fade as time goes by and recent positive data accumulates.
It’s important to know and understand your credit score so when it comes time for you to borrow money, you may qualify for the lowest possible interest rate.
How Credit Scores Are Determined
The mathematical formula used to calculate your core is called a credit scoring model. This model attempts to measure the likelihood that you may default on a loan payment, which is defined as being more than 90 days past due. These models:
- Analyze various credit behaviors, such as how regularly you pay your bills on time
- Compare your behavior with other borrowers to assess how likely you are to make timely loan repayment
Credit scores may differ from one source to the next because different lenders use different credit scoring models. Each company uses its own formulas for calculating credit scores. The differences in the formulas may lead to differences in your credit scores.
There are two common scoring models: FICO and VantageScore. Financial institutions choose the scoring models they use. Over 200 factors of a credit report may be taken into account when calculating a credit score. Each model may weigh credit factors differently, therefore no scoring model is identical. Dupaco staff use FICO to assist in making loan decisions, while the VantageScore model is used to calculate the credit score you see in Bright Track. This is one reason why the score you see in Bright Track may differ from the score presented when you apply for a loan with us.
The Great Credit Race
Dupaco’s Great Credit Race is a competition in which participants race to build their credit score from 0 to as high as possible in six months.