Credit Score Means Your Credit Rating

What is a credit score?

Credit score is a number lenders use to rate your credit worthiness. Lenders use the scores to decide whether to lend money and on what terms. With increased use of credit scores in a variety of industry these days, it may also determine how much you pay for auto and homeowners insurance and whether or not you get a new job.

There are a number of credit scoring programs on the market. A computer-generated score is compiled using information from an individual's credit report from Equifax, Experian (TRW) and Trans Union.

What are the top factors in determining your credit score?

• Credit history: Nothing damages you more than a late or missed payment. Credit history accounts for about 35 percent of the total score.
  
  
• Amounts owed: If you are using a lot of credit, other companies will consider you a higher risk. The less you owe, the better. The total amount you owe weighs about 30 percent on your score.
  
  
• Length of credit history: Companies like to see a stable pattern of on-time payments over several years. Keep those old credit accounts. It factors about 15 percent of your score.
  
  
• New credit: It spooks creditors if you open too many cards at once. It suggests that you need money and may be unable to pay.

What is a GOOD credit score?

Your credit score provides a good summary of how lenders will view your credit profile. Although each lender has different rules, the following will give you a general idea of what your score tells lenders.

Above 730: Excellent credit
700 - 729: Good credit
670 - 699: Lender will take a closer look at your file
585 - 669: Higher risk; you will not be eligible for the best rates and products. Credit products may not be available.
Below 585: Credit options will be limited or not available. Lender will need to consider other information in your application.

Explanation of the "reasons"

When a credit bureau calculates your score, it is accompanied by "reason codes" that explain, essentially, why your score isn't higher. For example, reason codes will explain that you are being penalized because because you have too few credit cards or too many credit cards or you have too many accounts with balances or too many accounts without balances.

For more information on credit score and how to improve your credit rating, you can visit Credit Score Guide.

FICO Score is the most widely used credit score.

Credit scoring companies take the information from your credit report, feed it into a mathematical model and come up with a number, known as a credit score. Fair Isaac Corp., based in San Rafael, is the leading provider of credit scores. Its main product is the FICO score.

FICO scores range from 300 to 850, with the median being 720. Generally if you are above 700 or 720 you can usually qualify for the best rates. A FICO score is based on the information in your credit report located at that particular credit bureau.

Your score may be different at each of the three main credit reporting agencies (Equifax, Experian [TRW] and Trans Union). The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs.

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