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Your Credit Score
You have already learned "Why Credit Matters." Now it is time to get a better understanding of your credit score. Credit scores are calculated differently for each of the three major credit bureaus. Each uses their own proprietary measuring system to assess your credit worthiness or risk. However the basics appear to remain consistent between Equifax, Experian and Transunion. It is as follows:
Payment History - 35%
- Account Payment History
- Derogatory Items (Late Payments, Charge-Offs, Collections, Lawsuits, Judgments, Bankruptcy, Liens)
- Number of Past Due Items
- Severity of Late Payments
- Amount Past Due on Derogatory Accounts
- Time Since Late Payments or Derogatory Items
- Accounts Paid as Agreed
Amounts Owed - 30%
- Amount Owed on Accounts
- Amount Owed on Different Types of Accounts
- Number of Accounts with Balances
- Lack of Balance Information
- Ratio of Credit Available to Credit Used
Length of Credit History - 15%
- Time Since Account Opened
- Length of Time Since Last Activity
New Credit - 10%
- Number of New Credit Inquiries
- Time Since Credit Inquiries
- Number of Recently Opened Accounts
- New Credit History Following Late Payments
Types of Credit - 10%
- Different Types of Accounts (Credit Cards, Retail Accounts, Installment Loans, Mortgage, Auto Loans, etc.)
What is a Good Credit Score?
High 700's
Consumers with credit scores in the high 700's are considered the lowest risk to potential lenders. Because they pose less risk using the credit bureaus scoring range they commonly are approved and receive the best interest rates.
Low 700's
This is still considered a good great score. According to Fair Issac Corporation, the creators of the FICO score a 723 is the average score in the U.S. - 2010.
High 600's
While not the best, consumers in this range may still qualify for home and auto loans, credit lines, etc.
Mid to Low 600's
This is where trouble can begin. While people with mid to low 600's may still qualify, they will pay higher interest rates, fees and finance charges. Back in the housing boom of the early and mid 2000's, this was okay. Today, it simply isn't good enough in most cases.
Below 600
This is considered bad credit. A high risk for lenders that in most cases will be denied credit unless there are mitigating factors which an underwriter may consider before extending what would normally be a high interest rate loan.