What are free credit scores?
Credit scores are numbers which are based on various statistical analysis’s to generate the credit report of consumers. This report is then used by various lenders and financial institutions to evaluate the creditworthiness of the applicant. It helps in analyzing the potential of debtors to repay loans and other debts. Credit scores are made on the basis of credit report information, which is provided by the three major credit bureaus.
Importance of credit scores
Credit scores are used by lenders like banks, credit card companies, individual lenders, etc. to understand the potential risk posed by lending or also to mitigate the risk of losses in cases of bad debts. Through the credit scores, lenders are able to evaluate, the interest rates to be charged for the loans or debts. Usually good credit scores help in getting low interest loans while poor credit results in high interest loans. The most common and widely used agency for calculating these scores in the U.S is FICO. Other agencies include VantageScore, NextGen and CE Score.
Credit reporting agencies
There are three main agencies which are responsible for credit reporting. These include Experian, Equifax and TransUnion. These agencies calculate the credit score of debtors and borrowers through different formulas of computation. Scores generated here are through different trademark names. There is a lot of difference in their predictions, statistical methods and other related factors on the basis of which consumers are rated. The FICO scores are developed through different versions of these credit scores and are updated periodically to reflect the financial status of loan repayment and interest rates.
Free credit score generation
Due to the FACT act, which is also known as the Fair and Accurate Credit Transactions Act, all legal residents in the U.S are entitled to a free copy of their credit reports. This is available from each of the credit reporting agencies in every 12 months. The information is sanctioned by the Federal government and can be availed from the websites of credit reporting agencies. There are also emailed to consumers. To ensure that information on credit reports are not inaccurate, the consumers can request for reports, which will be given by different agencies every 4 months. But these free reports do not contain credit scores and the same has to be purchased during accessing these reports so that borrowers can understand their potential purchasing power and evaluate the same.