what is a credit score?

Answer 1

Credit scoring is a scientific method that uses statistical models to assess an individual's credit worthiness based on their credit history and current credit accounts. Credit scoring was first developed in the 1950s, but has come into increasing use in just the last two decades.

In the early 1980s the three major credit bureaus, Equifax, Experian and Trans Union all worked with the Fair, Isaac company to develop generic scoring models that allow each bureau to offer a score based solely on the contents of the credit bureau's data about an individual.

Each credit bureau has its own unique system. However, the scoring models have been normalized so that a numerical score at one bureau is the equivalent of the same numerical score at another. Thus, a score of 700 from Equifax indicates the same creditworthiness as a score of 700 from Trans Union or Experian, even though the calculations used to determine those scores are different at each bureau.

Creditors--especially in the mortgage industry--frequently use these scores, known as FICO scores, as an important factor in the decision whether or not to offer credit. The scores range from 375 to 900 points, but those numbers mean little on their own. They become meaningful and useful within the context of a particular lender's own cutoff points and underwriting guidelines.

In general, you are likely to be considered a better credit risk if your FICO score is high. Under mortgage lending guidelines, for example, a score of 650 or above indicates a very good credit history. People with these scores will usually find obtaining credit quick and easy, and will have a good chance to get it on favorable terms.

Scores between 620 and 650 (average FICO scores fall into this range) indicate basically good credit, but also suggest to lenders that they should look at the potential borrower to assess any particular credit risks before extending a large loan or high credit limit. People with scores in this range have a good chance at obtaining credit at a good rate, but may have to provide additional documentation and explanations to the lender before a large loan is approved. This means that their loan closing may take longer, making their experience more like that of borrowers in the days before credit scoring, when every individual was researched.

A score below 620 may prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk--but it does not mean that they can't get credit. The process will probably be lengthier and, as noted, the terms may be less appealing, but often credit can still be obtained.

The widespread use of credit scoring such as the Credit Bureau Scores developed using the FICO model allows for speedy, objective analysis of credit histories. This means that borrowers who score well can get loan approval or credit almost instantly--something unheard of in years past. It also means that borrowers who once might have experienced problems with individual lenders' prejudices are less likely to do so. Because it is objective and based on large volumes of verified statistical data, credit scoring brings a new level of fairness to the credit-granting process.

FICO or Credit Bureau score is based on information drawn from your credit report. About 30 individual factors are used to determine the score. These can be categorized in five areas (in order of importance):

Payment history. Does the record show frequent late payments, public records such as judgements or bankruptcy, or derogatory notes like charge-offs or accounts turned over to collections?

Outstanding debt. How many outstanding balances appear on the credit report? What is the average balance? What is the ratio of total balances to total credit limits on revolving debt (e.g., credit cards, a home equity line).

Credit history. How long have you had your oldest account?

Pursuit of new credit. How many inquiries and new accounts does your report show, and how recent are they? How long has it been since the most recent inquiry?

Types of credit in use. How many accounts are reported for bank cards, travel and entertainment cards, department store cards, installment loans, and so on.

Answer 2

It is a system developed to prevent people with money problems or health problems from getting jobs, houses, credit.

They eliminate the human factor.

Lets say you pay all your bill on time you will have nothing show up on your credit. So in order to have a credit score you must purchase or apply for a credit card, or something on credit. This will show up on your credit score as having this much credit against you. If it shows no missed payments . You get a good credit score. When you go for a job, house, or car you will be given better interest rates to temp you to purchase more on credit.
Then of course you can not predict the future and your husband and you loose your jobs because the place you worked closed or went out of the country. If you purchased credit insurance the payments will still be made. Or if you put aside money in a savings account to pay your bills if you loose a job. You will still have good credit.

In my case the insurance that was suppose to cover the rest of the house changed the policy as to avoid paying. Then I quit my job to care for my disabled child. Then they cut hers mine and my sons health care insurance causing me to loose my house to foreclosure and now have the worst possible credit.

Answer 3

its a number which can both haunt you and help you.. usually between 650 and 800. the higher the better. you get a credit score and build credit by buying something on credit and making payments ontime- whether it be a credit card or a car or a student loan.

Answer 4

It is a score that tries to predict how likely it is that someone will repay a loan. It is not the only factor in approving or denying a loan, but it at least influences the rates offered.

Answer 5

Just type in "Credit Score" and you will find out.

Answer 6

its the score that lenders rate you at from 100 to 800 i think, lets them know how easily you will be taken in by their high intrest rates and double talk ,

Answer 7

Im afraid to look.... hopefully its 2 digits