What is Precision Score
Precision score is the former name of the TransUnion credit reporting agency's NextGen credit model.
Breaking down Precision Score
With precision scores in general, the lower the score the higher the risk for the lender, the higher the interest rate charged. Credit model names differ, but credit rating agencies use comparable algorithms. The score determines risk for a lending institution to lend money or advance credit to borrowers. The NextGen scoring model was created by Fair Isaac Corporation, which created the FICO score. A FICO score is a type of credit score created by the Fair Isaac Corporation. In general, a FICO score above 650 indicates a very good credit history. A score below 620 may make it difficult for the borrower to obtain financing at favorable rates. To determine creditworthiness, lenders also consider income, employment history and type of credit requested. Lenders typically use credit scores from Experian, Equifax or TransUnion, the three major credit reporting agencies. Each calculates a consumer credit score differently depending on the type of loan and the content of the applicant’s credit file with that agency.
A different credit score may result for the same individual with the same agency depending on whether the application is for a credit card, an auto loan, a mortgage or new utility services.Any difference in scores between agencies would depend on the information available to each credit bureau.
FICO Scores Explained
FICO scores take into account five factors to determine credit worthiness: payment history; current indebtedness; types of credit used; length of credit history and new credit accounts. In general, payment history represents 35 percent of the score, accounts owed 30 percent, length of credit history 15 percent, new credit 10 percent and credit mix 10 percent. Payment history measures whether credit accounts are paid on time. Credit reports show payments for all lines of credit and indicate if payments are received 30, 60, 90, 120 or more days late. Accounts owed refers to total amount owed. High debt does not necessarily mean a low credit score. FICO considers the ratio of money owed to the amount of credit available. And, generally the longer the credit history, the better the score. However, with favorable overall scores, an applicant with a short credit history may obtain a good score. Credit mix is the variety of accounts. To earn high scores, applicants need a mix of credit such as retail accounts, credit cards, installment loans or vehicle loans and mortgages.
New credit refers to recently opened accounts. New account openings in a short period of time raise credit risk so can lower the applicant’s score.