Credit Scores

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A credit score is a statistically created number that depicts a person's creditworthiness. Lenders use a credit score to evaluate the probability that a person will repay his or her debts. [A credit score] is generated for each person with a social security number and is calculated on a person's previous [credit history].

A credit score is a three-digit number ranging from 300 to 850, with 850 as the highest score that can be obtained. The higher the score, the more trustworthy a person is considered to be by lenders. A [FICO] score is the most commonly used [credit scoring] system. The Fair Isaac Corporation abbreviated as FICO, is the company that created the standard credit score model for use by financial institutions. There are other providers of credit scoring systems such as the insurance and mortgage industries. Consumers can
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When information is reported on a borrower’s credit report, the borrower’s credit score changes due to making a payment, missing a payment or a derogatory action such as a bankruptcy or judgment.

The five main factors that are evaluated when calculating a credit score are payment history, total amount owed, length of credit history, types of credit and new credit. Payment history counts for 35% of a score and shows whether a person pays their obligations on time. Total amount owed counts for 30% of a score and shows the number of accounts a person has open and how much money is owed on each account. Length of credit history counts for 15% of a score and shows how long a person has had a credit history dating back to the first account opened.

Types of credit used counts for 10% of a score and shows if a person has mix of installment credit such as car loans or mortgage loans and revolving credit such as a credit card or a line or credit. New credit counts for 10% of a score and shows if a person opens multiple new accounts at the same
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