The Nature of Credit Scores

Understanding Your Scores

In a minute we will explore many practical ways you can boost your credit scores and avoid score-lowering errors. But if you want real credit repair success and the ability to keep your valuable credit scores at their best, you should understand the true nature of credit scores and why they behave as they do.

The Real Intention

Credit scores were created for lenders, not consumers. Credit scores are designed to measure the risk that you will default on a loan. Unlike a simple report card of your past performance, your credit scores consider the implication of many subtle changes in your credit behavior.

Statistics and Logic

If, for example, you were to use the full amount available on a credit card you would find your scores dropping dramatically even if all your payments have been on time. Statistically, there is a strong relationship between high credit card balances and credit default. FICO uses statistics like this in the formulation of their model. Even without statistical support you can follow the logic; high balances may point to a weak financial condition and potential budget stress.

Think Like FICO

Financial decisions should be made carefully. Your credit score may not always be your primary concern, but it is helpful to be aware of the impact that your choices have. As we discuss the actions that can affect your scores and your credit repair success, think of the reason for the impact. Soon you will be thinking like FICO!