There are many websites available on the internet that guide one about one's credit scores. These websites also provide credit monitoring. But how does one know that these websites give the correct information on credit scores?
Keep reading this article to understand how Credit Sesame, one of these most popular sites, works. At the end of this article, you'll know everything one needs about the calculation methods of creditworthiness. This will help you to understand is Credit Sesame accurate enough to trust it or not.
Reasons to Know Your Credit Score
People might want to know about their credit scores for various reasons. When applying for loans or credits of any form, this score can function as a savior because lenders can evaluate the score and creditworthiness, which helps them decide the kind of rates they can offer.
A better credit score can help one take loans at better rates, ultimately leading to better financing options.
Credit scores not only let you take loans at better rates, but they also give one a reality check. This can help people make necessary changes to lead to a secure future. You can always determine your financial position in any possible situation, which may include:
- Buying a car
- Buying a house
- Refinancing of student loans
What Is Your Credit Score and How Is It Calculated?
Before delving into details of credit score websites, it is crucial to understand the standard calculation procedure of credit scores and how they work.
Everyone takes loans or uses credit cards, and everyone has to pay them back sooner or later. So, depending on one's ability to pay the loan back, they award scores between 300 and 850.
This score is like a litmus test for lenders that demonstrates the range of interest rates offered. They also determine the chances of payback of the loan through this credit score. Therefore, unpaid loans are covered by setting a higher interest rate in a low credit score.
Various methods can calculate credit scores. One of the most common methods to calculate credit scores is prompting a FICO score. Now the question arises is that what is FICO which is a company that calculates analytics and generates credit scores.
FICO weighs the following information and calculates accordingly:
- The owed amount
- The new credit amounts
- The history of payment
- The length of credit history
- The amalgamation of types of credits
The length of time during which the credits are used is also one of the significant factors that are weighted. The credit bureaus like Experian, TransUnion, and Equifax provide necessary information which becomes the basis for one's credit scores. However, the algorithm is always quite complex, but since the data comes from credit bureaus so no issues with that. FICO scores may vary if each bureau gives different credit information.
It is also worth mentioning that FICO provides varied customized scores as per the type of lending required. For example, the FICO score for an auto loan can differ from a score for a credit card.
Is Credit Sesame Score Accurate?
Three credit-scoring agencies devised another alternative way to calculate credit scores. This way is known as VantageScore, which is computed by a weighted mean of the following variables:
- The available credit
- The recent credit
- The history of payment
- The utilization of credit
- The depth of credit
- The available balances of credit
Tools such as Credit Sesame utilize data from VantageScore to determine your credit score every once in a while. That is why it may be called quite reliable.
One thing that is common between VantageScore and FICO is that they lay great emphasis on the following two factors:
- The history of payment
- The utilization of credit
But the difference is that VantageScore is more advanced and vigilant as it also traces the consumers who were not visible to FICO. These consumers also include the ones who are either new users or those who use credits rarely.
Moreover, lenders also get specific reason codes for a particular score. This is a significant distinguishing feature of VantageScore because it determines a consumer’s creditworthiness.
A consumer's eligibility to get loans is determined by these scores from FICO or VantageScore so that lenders can get an idea of what they are getting into.
Is Credit Sesame Accurate: How It Works
Credit Sesame projects itself as a 'credit and loan company, unlike other competitor companies.’ While signing in to create an account with Credit Sesame, one needs to answer a few questions.
By answering these questions, Credit Sesame gets access to the following information:
- Credit score
- Loan and credit balances
- Debt-to-income proportions
- Home value and the value of other assets
After getting all such information, they create user-customized financial forecasts & trends after assessing:
- Financial products from central commercial banks
- Check market indicators
These financial forecasts help consumers to save more money.
Following the creation of these forecasts, an algorithm named "recommendation engine" is created. Based on one's credit profile, this algorithm develops customized credit services, including:
- Top credit cards
- Personal loans
- Home loans
- Auto loans
Also, all these forecasts and trends are regularly updated to give a clear financial situation to the client. Moreover, one can also use other user-friendly options like free identity theft protection.
Credit Sesame fetches one's information from TransUnion & uses VantageScore to determine credit scores. But unlike others, they do this only once a month and that too from only one bureau.
What Scores Are Needed to Qualify for the Best Refinancing or Loan Rates?
From worst to best, FICO divides credit scores into the following five categories:
- Very poor (300-579): With these scores on one's profile, one can't get credit without exceptions.
- Fair (580-669): Although these borrowers can still get credit with a low score. But they can't expect reasonable rates. Instead, they'll have the worst ones.
- Good (670-739): Such borrowers can expect slightly better rates. It has been observed that the delinquency ratio of these consumers is only 8%.
- Very good (740-799): If one falls under this score category, then one is eligible to get better-than-average rates.
- Exceptional (800-850): These consumers are supposedly the winners because they can get the best rates without any exception.
The VantageScore categorizes the users according to the following score ranges:
- Very poor (300-499): Such users should not expect any credit from the lenders.
- Poor (500-600): With specific, more significant amounts of down payments, consumers may still qualify with credits but with exceptionally worst rates.
- Fair (601-660): Such users do get credits, but the offered rates may not be the best of all.
- Good (661-780): These users will surely get credits, and their rates are significantly better than others.
- Excellent (781-850): The consumers of this category should be the happiest because they get the best rates and offers.