What is a Credit Simulation?

Mary McMahon

A credit simulation is a software program which simulates the impact of various events on someone's credit score. Many credit management and financial websites have a credit simulation application which people can use, and credit simulations are also sometimes available with personal financial software and through agencies which offer credit counseling. Being able to see the impact of something like paying down a balance or opening a new line of credit can be useful for some people.

Timely bill payment is a typical parameter in credit simulations.
Timely bill payment is a typical parameter in credit simulations.

In a typical credit simulation, someone inputs his or her real score, or the program retrieves the credit score from an agency which does credit scoring. Then, the parameters of the simulation can be adjusted, with the score moving up or down depending on what has been changed. Typical parameters include: paying all bills on time for the next three months, substantially paying down balances, making minimum payments on all balances, taking out a new line of credit, and making balance transfers.

For people who want to manage their credit effectively, using a credit simulation can be revealing and helpful, as it shows what would happen in numerous theoretical situations. The program also usually offers advice about the best practices which the person could follow, along with tips about the worst things which someone could do. For example, the simulation might suggest paying down half of the existing balances to improve a credit score, or advise someone to avoid making late payments.

Simulations can also be very useful in education for people who are learning to repair bad credit, or learning about how to wield credit effectively. Using a simulator, people can see what would happen if they made one or two poor decisions, such as missing payments or making late payments, without actually incurring the consequences of these activities. Credit counselors sometimes advise their clients to work with a credit simulation to explore the ways in which their credit scores can change.

It is important to remember that a credit simulation is only a simulation, and that actual changes to a credit score may vary. Lots of things can impact a credit score, and it isn't possible to imagine every single possible parameter when working with a simulation. What a simulator can do is show someone which actions will make the most difference to a credit score. The real-world results of these actions will trend up or down as the credit simulation indicated, but the precise increase or decrease in points on a credit score can vary.

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