A
credit score is a statistical assessment of an individual's
credit-worthiness based on their credit history and current
credit accounts. The credit score was first developed in the
1950s, but has come into increasing use in just the last two
decades.
The
three major credit bureaus worked with the Fair, Isaac company
to develop the credit score model that allow each bureau to
offer a credit score based solely on the contents of the credit
bureau's data about an individual.
While
each bureau has its own unique system, the scoring models
have been normalized so that a numerical credit score at one
bureau is the equivalent of the same numerical score at another.
Thus, a score of 700 from Equifax indicates the same creditworthiness
as a score of 700 from Trans Union or Experian, even though
the calculations used to determine those credit scores are
different at each bureau.
Creditors--especially
in the mortgage industry--frequently use these the credit
score, known as FICO scores, as an important factor in the
decision whether or not to offer credit. The credit score
can range from 375 to 900 points.
Generally,
you are likely to be considered a better credit risk if your
FICO credit score is high. Under mortgage lending guidelines,
for example, a score of 650 or above indicates a very good
credit history. People with this type of credit score will
usually find obtaining credit quick and easy, and will have
a good chance to get it on favorable terms.
Your
Credit Score
A
credit score between 620 and 650 (average FICO scores fall
into this range) indicate basically good credit, but suggest
to lenders that they should look at the potential borrower
to assess any particular credit risks before extending a large
loan or high credit limit. People with a credit score in this
range have a good chance at obtaining credit at a good rate,
but may have to provide additional documentation and explanations
to the lender before a large loan is approved. This means
that their loan closing may take longer, making their experience
more like that of borrowers in the days before credit scoring,
when every individual was researched.
A
credit score below 620 may prevent a borrower from getting
the best interest rates, as they may be considered a greater
credit risk--but it does not mean that they can't get credit.
The process will probably be lengthier and, as noted, the
terms may be less appealing, but usually credit can be obtained.
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