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Articles » What Is A Good Credit Score | | What Constitutes A Good Credit Score? |
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The credit scoring system developed by Fair Isaac and Company (FICO) for the three credit reporting agencies Experian, Equifax and TransUnion, is designed to give lenders an accurate picture of your credit worthiness and likelihood to default on a loan or credit account. Various factors, all of which are recorded on your credit report, go into determining what this score will be. Your payment history, public record accounts such as bankruptcies and foreclosures, and the amount of open credit accounts you have are all considered along with stability factors and good credit accounts.
A FICO score ranges from 300 up to 850, with a left-skewed distribution that puts 60% of the scores between 650 and 799. The median score, according to Fair Isaac, is 723, but Experian claims its average score is 678. Lenders use the formula below to determine whether or not they will grant you credit:
- 750-840 Excellent
- 660-749 Good
- 620-659 Fair
- 340-619 Poor
Each of the credit bureaus uses a different version of your credit report so each FICO score will vary by a few points. If you are below 620, you are considered a poor credit risk, but with the state of the economy and recent controversy over the accuracy of these scores, many lenders are giving out loans for those with scores as low as 570. You can find additional information on these creditors by researching the terms “ low credit loan ” or “ low credit mortgages”.
In 2006, in an attempt to make scoring between the credit bureaus more consistent, a new credit scoring system was developed called VantageScore. VantageScores range from 501-990 and assigns letter grades from A to F to determine credit worthiness. The new system puts more people into the “fair” category and less into the “poor” category. It also makes the “excellent” rating a larger pool so you will be compared with those that have much better credit than you when your score reaches the 800 range.
FICO and VantageScore are not the only scoring methods out there, but they are the ones used most frequently by banks, mortgage brokers, and automotive finance companies. There are many things you can do to raise a low FICO Score but all of them begin with one simple thing. Pay your bills on time and don’t overextend yourself with too much credit.
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