In most instances, the range that is used in calculating credit scores is the lower ranges. The lower ranges reflect the applicant's better credit borrowing capabilities, while the higher ranges reflect the applicant's worse credit borrowing propensity. Credit scoring models use the lower and upper ranges as the criteria for assigning credit scores to individuals. These ranges are usually between 580 and 690, with the exception of smaller and closer geographically-disputed local areas and states.
There are many different scoring models available for calculating credit scores. Each of these models uses different inputs that are analyzed by software to come up with credit scores. Lenders and potential lenders use different types of mathematical algorithm to arrive at the formulas that form the basis of the formulas that are used to calculate credit scores. Check out this credit score guide or learn more on fixing your credit score at creditsavvi.com/derogatory-credit-sweep/the-hoth.
Each of the three major credit risk models used by lenders are: The FICO scoring model, The TRW model, and The Fair Isaac model. All three of these models assume that an applicant is responsible with payments on all credit accounts. Since these models were developed by the Fair Isaac Corporation, this assumption has been proven true for the past thirty years, as there have been very few errors in this area resulting from the use of these models.
A potential lender is not concerned with whether or not you pay bills on time, they are only concerned with whether or not you can repay the debt when it is due. Because of this, there are no credit scores or FICO score ranges associated with paying bills on time, as the risk for lenders is reduced. As a result of this, potential lenders use the FICO scores to determine if a person is responsible with paying bills and can handle responsibility before their due date. This is how a FICO score helps a potential lender make the decision to extend credit to an applicant.
Credit scores and a FICO score range do not always go hand-in-hand with the amount of money that consumers apply for. Many consumers have credit cards with balances on them that are substantial and do not meet the definition of revolving credit. In this situation, consumers can obtain credit even with poor payment history, but if they do not maintain good payment history it can negatively impact their credit scores. This is why many consumers choose to close credit card accounts rather than apply for more credit, as the risk of being rejected for more credit is greater when consumers have a poor payment history. You can read more on this here: https://www.huffpost.com/entry/raise-credit-score-mortgage-house_l_5d0195c2e4b0304a1209884b.
