Credit Scores 101

A credit score is a three-digit, computer-generated, number based on your credit report. Credit scores summarize your credit rating by giving it a number. Lenders use the score combined with other information to determine your credit-worthiness.

Various factors are used to determine a credit score, including your payment history, how much of your credit you are using, and the like.

The higher your score, the easier and less expensive it will be for you to access credit. The ideal credit score is 800 or above. 720 and above is considered good.

Understanding the factors which make up a credit score can help figure out what you can do to improve your credit score. 

Credit scores, and the reports on which they are based, are easy to obtain. For instance, one way is to go to www.annualcreditreport.com and enter the requested information (name, address, birth date, Social Security number.) If you are applying for a loan, it is advisable to get all three reports and scores and check them carefully. 

At www.credit.com you can get two measures of your credit score plus a report that tells you how you are doing in five areas that make up the score. The two measures are Fair, Isaac & Company, or FICO, mode (pronounced Fie-ko) and VantageScore. FICO is the measure used by most lenders. Scores are in such a manner that each bureau's score should be roughly similar. In addition, lenders use other company scoring models, such as "application scores" and "custom scoring models." These lenders will combine your FICO or VantageScore with your application information to get a customized, composite score.

Your "FICO" score has a different name when generated by each of the following three major credit bureaus: Equifax, calls your score a "Beacon" rating, Experian uses the words:  "Experian/Fair, Isaac Risk Model", and TransUnion calls your credit score the "Empirica".

Lenders will view a score between 700 and 750 as an average risk. Scores below 700 may cause lenders to look more closely at your file. Scores over 800 are excellent. If your score is below 700, you may be charged a higher interest rate for credit or have to make a higher down payment on a loan. However, most lenders will use more than just your credit score in deciding whether or not to loan you money. Other factors can include:your income, the number or years you have lived in a residence, and how long you've been in one job.

Note that the individual credit score that you see as a consumer and the one that decision makers use is sometimes different. Lenders will look at the scores from the three credit bureaus, and will usually take the middle score regardless of which credit bureau created it. For example if your scores are 779, 780 and 802, lenders would generally use 780. Lenders generally use their own complicated formula with the credit score included along with other factors.

Beware of "free" credit score offers. They frequently come from thieves.If you want to check a particulare service, find its address through a search engine and type it in yourself. 

See the following sections for additional information:

• How Are Credit Scores Determined?
• How Can I Find Out My Credit Score?
• How Can I Improve My Credit Score?

It is a myth to think that working with a credit counseling agency will be reported to the credit bureaus. Only taking actions that re recommended by a counselor can affect your credit score. For instance, making partial payments.

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