A credit score statistically compares information about you
to the credit performance of a base sample of people with similar profiles. The
higher your credit score, the more likely you are to be a good credit prospect.
The less risky you are, the better your chances of obtaining credit at a lower
interest rate. When a potential creditor looks at your credit report, they
are looking at a report from at least one of the major credit bureaus:
TransUnion, Equifax and Experian.
These companies collect account and payment
information on you from your creditors. Creditors may report information to
just one, two or all three credit bureaus.
The credit score is determined by FICO. It is used to
describe a system developed by the Fair Isaac Company. Credit scores can be in
the range of 300 to 900 and the higher the number the better the score.
Factors Used for Determining Credit Score
The following the factors that are used for determining the
credit score of a person:
- Payment
history: People who have failed to make payments in the past tend to do
the same in the future.
- FICO
places a 30 percent emphasis on the amount of money you owe and your
available credit. It also asks about your outstanding debt, such as your
mortgage, credit cards, and auto loans. FICO also asks the total amount of
credit you have at your disposal.
- The
age of the credit file. Fair, Isaac's model assumes people who have had
credit for a long time are less risky.
- The overall
mix of your credit. The more types of loans you've had, the better, as far
as your FICO score. If you've had car loans, credit card payments, various
types of installment loans, and a mortgage, you'll receive a higher FICO
score.
- The
number of times a person asks for credit. The systems frown upon those who
have initiated several requests for credit cards, loans or other debt
instruments over a short period of time.
Credit Score
Ranges
Credit score ranges are broken down as follows:
- Good
credit score (700-850)
- Average
credit score(600-700)
- Bad
credit score (300-600)
Lenders may also integrate information from your loan
application, such as your job, length of employment, or whether you own a home.
Age is not a factor in constructing a FICO score but may be used in other kinds
of credit scoring.
Other information such as location of residency, interest
rates on current loan obligations, and child or family support obligations may
be used in some credit scoring programs but are not factors in a FICO score.
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