Sometimes Credit Scores Just Don’t Matter

Do you know what your credit score is? Today, the mantra for “responsible” credit users is, “Know your credit score” – but that may not be as important as you think it is. If you have a less than perfect credit score, take heart. There’s a lot more to consider. Take a look:

The credit score you see and the credit score lenders see might be very different.
Surprised? Don’t be. A recent study found that the credit scores sold to you, the consumer, are often based upon a different model or models of worthiness as compared to those sold to potential creditors. While 73 to 80% of consumers had similar scores across all models, different scoring models put consumers one category “off” as compared to another model 18 to 24% of the time. And 1 to 3% of the time, consumers were placed two or more categories apart within each model. The result is that the credit score you see might not be what the lender sees, after all.

Your credit history matters much more than your actual score does.
If you pay debts and other bills on time and are financially responsible, your credit history will show this. If your credit history is “clean” and doesn’t have credit worthiness “no no’s” on it like late payments, defaults, bankruptcies, and the like, the lender will be much more interested in that than he or she will be in your actual score.

Your credit score is only a snapshot of your credit history, and therefore may be inaccurate.
Your credit score is a sort of “snapshot” of your credit history, but it can be inaccurate because your credit history can change on a dime, literally. It’s always in flux. Because of that, you credit score is only a convenient summation of one particular, tiny point in time, and it can become inaccurate very, very quickly.

Your creditor uses scores other than the standard credit score to determine risk.
Ever hear of something called a “behavioral score” or a “custom application score”? These are scores that only lenders use to determine whether or not you’re a good financial “risk” to them. Behavioral scores are generally based on data gathered by credit card companies to determine just what type of credit card customer you are. Do you make payments on time? Do you carry a balance from month to month? How much do you owe on a particular account? How often do you call a particular company? All of this data paints a picture of you as a credit card customer, and companies can also provide that information to lenders. It gives them a picture of just what kind of consumer you are, and whether you’ll be responsible with your payments, and so forth.

The custom application score is rather like your credit score, but instead of allowing a lender to surmise general risk as based upon “all” of your financial behavior as per your credit history, the custom application score is based upon a particular lender’s own base, and helps determine whether or not you will make payments, etc., on time.

You won’t be able to get information on these scores; they’re very proprietary and “top secret,” available only to lenders and credit card companies, but they are out there and are used by officials to determine whether or not you are a good risk.

Time heals all (or at least most) wounds.
At least that’s true for financial ones. If you’ve had a spotty credit history because you’ve been late on payments, defaulted on credit cards or other loans, etc., you can start to repair things today by making payments on time and being financially responsible. Lenders care far more about your present behavior than they do about your past behavior, so that within about two years, your credit history will in effect “repair itself” as long as you become responsible and make payments on time. While bankruptcies may impact your credit score and therefore your credit worthiness for up to seven years or longer, depending on specifications, in general, responsible financial behavior will repair things so that you become a good risk to lenders and can get the financing you need.

Chase Sagum is a blogger covering Financial topics specifically Credit Repair, around the web.

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