Credit Score Explained

Credit score explained, And How Can You Find Out Your Score?

Consumers that are in debt and concerned about paying it off, should probably aware that too much debt, late payments, or worse, missed payments, can negatively effect their credit standing.

But what is a credit score? How do I find out mine and how to get credit score explained?

In the 1950s the Fair Isaac Corporation (FICO) was founded by an engineer named Bill Fair and a mathematician named Earl Isaac, to develop a credit scoring system. They built their first credit rating system in 1956. The Fico score was born.

As the years went on the Fair Isaac Corporation developed ever more sophisticated credit scoring systems and software to predict people’s credit worthiness.

The more likely it is that someone will default on a loan, the higher their interest rates will be.

So now, when a lender is considering whether to give a borrower a loan, they generally go to a credit reporting agency, usually to the big 3 credit report agencies, to get the credit rating of that person before deciding whether to give a loan at all - and deciding what that rate of interest will be.

The three major agencies are Equifax, Transunion, & Experian. Where does Fico come in? All of these agencies use FICO software information to determine your credit score, ranging from 300 to 850, with most people in America falling in the 600s to 700s. These days, with tightening credit standards, a credit score in the 700s is often necessary to get a mortgage loan, especially one with a good rate.

Here you'll get get your credit score explained and what are the factors that FICO takes into account to calculate credit scores:

• Payment history: 35 percent - Do not pay late!
• Amounts Owed: 30 Percent - Don’t borrow too much in proportion to your credit history!
• Age of Credit History: Any older credit card with regular payments on time helps usually build good credit
• New Credit: Number of recent accounts opened, number of recent credit inquiries - applying for a lot of loans and credit cards at the same time hurts your credit
• Types of Credit Used: Retail store accounts, credit cards, mortgage loan, installment loan, car loan, etc.

Credit score explained and what is a good credit score

• Anything above 700 is seen as an excellent score.
• A score ranging from 600 to 690 is okay, but not optimal. Nowadays, with tightening credit standards, a score like this may not be enough to get mortgage loans, and in any case not enough for the best interest rates.
• Any score below 600 means you're considered a high credit risk.
• If your score is below 550 then you've an absolutely bad credit score.

Any consumer is entitled to look at his free credit report once a year by going to www.annualcreditreport.com and requesting it. They are obligated to provide you with one free copy of your report every 12 months. They are the only site authorized by the Federal Government to provide free annual credit reports. The Federal Trade Commission recommends that you link to them directly from their site www.ftc.gov/freereports to make sure that you are going to the official site. To see your credit score explained and understanding your credit score - not your credit report - you have to pay for it. You can purchase it from one of the three major credit bureaus, Equifax, Experian, or Transunion.