A credit score is a quantified expression of the creditworthiness of an individual. It is obtained from information derived from credit reports of the three major credit reporting bureaus.
This information is then interpreted following a process of statistical analysis. In the United States the primary system used for determining credit scores is FICO. This system is used by TransUnion and Equifax. Experian does not use the FICO model; using in its place a system organic to their company which they call "PLUS."
Credit scores are used by prospective lenders in determining the qualification of a loan application. They can also be used by landlords, prospective employers, insurance companies and utility companies to determine the credit risk associated with a person.
Understanding FICO Scores
FICO scores can range from 350-850. The median score is that of 723. When a prospective lender views a FICO score, each will have their own degree of gradation related to potential risk, but in general a score below 620 is classified as having "bad credit." A score near 640 is usually classified as having "decent credit." A score above 650 is viewed as having "good credit." A score above 720 represents a person having "excellent credit."
What Affects FICO Scores
A FICO score is determined by means of a statistical analysis model, and habitual financial practices are reflected in them and subsequently compared to the population at large; as well as through specific demographic prisms.
History of payments on current liabilities, the amount of outstanding debt, credit that is actually in use, newly obtained lines of credit and past credit history all affect the final FICO score.http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
Monitoring FICO scores through any of the three major credit bureaus can also help detect mistakes or fraudulent use of one's credit history. These two factors can also have a serious impact on one's credit.
Credit Score Basics
Staff reporter Jeremy Simon provides a simple, yet informative, explanation of what a credit score is, what is says about you and who actually looks at your credit score. A bit irreverent at certain points, it removes the complicated stigma of credit report basics and provides a useful rundown of what is essential for everyone to know, whether you are in the process of getting a loan or not.
Disclaimer
The content of this page is intended for general informational purposes only and is not a substitute for professional financial advice.
References
Fast Facts
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Fact:
The FICO score is the most widely used credit score in the U.S. It is weighted by the following factors
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Payment History
35%
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Amount Owed
30%
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Length of Credit History
15%
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New Credit
10%
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Types of Credit Used
10%
