Credit Score

A credit score is a measure of creditworthiness. It can range from 300 to 850, with an excellent score being one that is 750 or above. The score is a statistically comprised figure that takes into account several credit history factors. These include: payment history, credit utilization of debt to credit ratio, length of credit history, types of credit used, and recent action taken to find new credit or new loans.

FICO (Fair Isaac Corporation) scores are commonly used, because they invented the first credit scoring system. The credit score also takes into account recent credit and inquiries shown on the credit report, court judgments, bankruptcy, and other items showing on the report that would indicate a negative entry. There are other credit score agencies besides FICO, such as NextGen Score and Vantage Score reporting.

The credit score is found on the credit report at the major credit reporting agencies, Equifax, Experian, and TransUnion. It is considered to be a snapshot of the person or business and their risk approximation. A high FICO score is important because it will allow a person to obtain credit, and get lower interest rates because they are considered to be a good credit risk rather than bad.

A credit score can be improved with and kept higher by making regular, consistent payments that are on time. Keeping credit balances low to about 30% of the limit is another way to help raise a credit score. Having a credit account for a long time is better than a short time, and even when paid off, it is good to keep accounts open, because it helps the debt to income ratio calculation. Having too many accounts, however, is a negative as lenders worry if you might run them all up, and then be unable to pay.