What is A Credit Score?

When it comes to credit, what you don't know can actually hurt you financially. You get credit by promising to pay in the future for something you receive in the present.

Credit is a convenience because you can enjoy your purchase while paying it off. Today when someone mentions credit, what they are usually referring to is a credit history. This is a record of a person’s credit past, as tracked by an agency or bureau, from credit cards they have applied for and received, and the promptness of their payments. Accounts in department stores, car loans, home financing or renting, phone and electric bills, cable charges all can be variables. What do lenders want to see in a credit history? Stability is the key, both on the job and where one lives. Prompt payments of past debt and a low debt to income ratio are major determinants.

A credit score is a number that is generated by a mathematical algorithm based on the information that is found in your credit report. Your credit score is a figure used by lenders as an indicator of how likely you are to repay the loans. The most commonly used type of credit score in the United States is called a FICO® (Fair Isaac and Company) Score, which can range from 300 to 850. FICO scores are provided to lenders by the three major credit reporting agencies : Equifax, Experian, and Transunion.

A person with a high FICO score is deemed less of a credit risk than someone with a lower FICO score and can often obtain credit on more favorable terms. So what are the typical FICO scores in the United States?

FICO SCORES IN THE UNITED STATES

800 and above 749-799 700-749 650-699 600-649 550-599 500-549 499 and below

11 % 29 % 20 % 16 % 11 % 7 % 5 % 1 %

 

Usually, a FICO score higher than 650 indicates that an individual has a good credit history and thus will have relatively little trouble in obtaining credit with favorable interest rates.

Excellent Credit : FICO score 720 or higher Well established credit history with no major problems or collections during the past 7 years. Good Credit : FICO score 680 - 720 Credit history with a few minor problems in the past 7 years. Fair Credit : FICO score 620 - 680 Credit history of some late payments, collections or liens in the past 7 years. Poor Credit: FICO score below 620 Credit history of late payments, collections, bankruptcy, liens or judgments within the past 7 years.

 

The Fico score from each credit reporting agency considers only the data in your credit report at that agency. The scores you get from each of the three credit reporting agencies can vary because the information those agencies have on you can differ.

 

 

What are the different factors that can influence a credit score?

A lot of factors can influence your credit score. These factors include your payment history, outstanding debt, length of credit history, severity and frequency of derogatory credit information such as bankruptcies, charge offs, and collections.

 

CREDIT SCORE CRITERIA

As the information in your credit history changes over time, your credit score will also change.

Why is a having a good credit score important?

Credit scores and reports are used today to help determine the rates you will pay on loans and credit cards and even your insurance premiums. The internet allows a potential employer to easily get access to your credit report and score, and in certain circumstances it can play an important part in determining whether or not you get the job. A difference of 40 or more points on your credit score can cost you $100 or more per month on a $150,000 30 year fix-rate mortgage.