What is a credit score?

Question

Im a kid so it doesnt matter but im seeing all these commercials and it sort of looks like bs.

Uhh dude who just coppied that from like wikipedia, thanks, but i have no clue what it is saying.

Answer 1

In the United States, a credit score is a number, based on a statistical analysis of a person's credit files, to represent the creditworthiness of a person, the likelihood that the person will pay their bills. A credit score is primarily based on credit report information, typically from the three major credit reporting agencies.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate loss to bad debt. Lenders use credit scores to determine who qualifies for a loan, for what interest rate, and what credit limits. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system. While the most widely known score in the United States is FICO (which is most widely used in the mortgage industry), there are many others, such as NextGen and Vantage Score.

Answer 2

It is a score based on your payment history and how much debt you have. The credit reporting agencies came up with it for a quick way to see your "credit worthiness" or risk of borrowing money to people and lenders use it as a guide to see if they want to lend you money.

In most cases it is quite accurate but others it is unfair......it is a guide but not the "final word", that's up to the lender.
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Answer 3

It is the result of a complex formula which is used to determine the risk you present to creditors. The higher your score, the lower risk you are to the companies that loan people money. The lower your score is the better the possibility is that you will be late making payments, or the better chance that you will not pay your bill.

Answer 4

We apply for credit for many reasons -- maybe it's to buy a new car, house, computer, or get a student loan. Did you know, however, that there is a special number that can determine whether you can do these things, or at least how much it will cost you? Your credit score is a three-digit number that can do just that.

How can a single number be meaningful enough to determine whether you can buy a house or car? If you've read How Credit Reports Work, you know that your credit report contains a history of how you've paid your bills, how much open credit you have, and anything else that would affect your creditworthiness. Your credit score boils down all of that information into a three-digit number.

In this article, we'll find out how this formerly secret number is used and how it affects how much you pay for credit, insurance and other life necessities.

A credit score is a number that is calculated based on your credit history to give lenders a simpler "lend/don't lend" answer for people who are applying for credit or loans. This number helps the lender identify the level of risk they may be taking if they lend to someone. While the same end result can come through reviewing the actual credit report (which lenders usually do), the credit score is quicker and less subjective. The system awards points based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time. It's the credit score that makes it possible to get instant credit at places like electronics stores and department stores.

Although there are several scoring methods, the score most commonly used by lenders is known as a FICO because of its origins with Fair Isaac and Company. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses. Each of the three major credit bureaus (Experian, Equifax and TransUnion) worked with Fair Isaac in the early 1980's to come up with the scoring method.

The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you've been at the same job.

Think of your credit score like you would a grade in school. A teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighting each one according to importance in order to come up with a final single number (or letter) score. Your credit score is calculated in a very similar manner. Instead of using the scores from pop quizzes and reports you wrote, it uses the information in your credit report.

The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:

* 35% of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.

* 30% of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits.

* 15% of the score is based on the length of time you've had credit. The longer you've had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.

* 10% of the score is based on the number of inquiries on your report. If you've applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven't used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.

* 10% of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn't have. These actually come more into play if there isn't as much other information on your credit report on which to base the score.