Your Credit Score

A credit score provides a “snapshot” of your credit risk at a particular point in time. Lenders, insurers, landlords, employers and utility companies use your credit score to determine if you qualify for a loan, and at what interest rate and credit limit. It is weighed even more heavily when you apply for unsecured credit, or credit lines and credit cards that do not require collateral.

Creditors collect information about you and your credit experience from your credit application and credit report. This information may include:

  • Bill-paying history
  • The number and types of accounts you have
  • Late payments
  • Collection actions
  • If you have applied for new credit recently
  • Outstanding debt
  • How long you've had existing accounts

Using a statistical program, creditors compare your information to the credit performance of consumers with similar profiles.

Each creditor may use its own credit scoring model or varying scoring models for different types of credit. Creditors may also use a generic scoring model developed by a credit scoring company. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. The total number of points is what’s known as a credit score. It helps predict how creditworthy you are, or how likely it is that you will repay a loan and make timely payments.

How FICO Scores Work
Although lenders and credit agencies have their own proprietary scoring systems, the most common scoring model is the Fair Isaac Company (FICO) model.

You have three FICO scores, one for each of the 3 credit bureaus:

  • Equifax
  • Experian
  • TransUnion

Each FICO score is based on information the credit bureau keeps on file about you. As this information changes, so do your credit scores.

FICO scores range from 300 to 850. A lender will offer you a better interest rate the higher your FICO score. Having poor FICO scores can lead to higher interest rates.

Negative Rating
Many factors can contribute to someone getting a "bad credit" score from the credit reporting agencies. These include:

  • Non-payment
  • Late payments
  • Skipping payments
  • Exceeding card limits
  • Declaring bankruptcy

Generally, negative information remains on your credit report for about 7 years, while bankruptcy filings typically stay for about 10. A negative rating can make it more difficult to get loans or credit, and often mean you will pay more interest because lenders consider you a high risk. However, taking steps to improve your score can help you qualify for better rates from lenders.