Credit Scores

Besides providing a detailed record of your debt management practices, credit reports also include your credit score: a snapshot of your credit risk at a given moment. Your score indicates the likelihood that you will pay off a debt as compared to other borrowers nationwide. You receive or lose points for certain types of credit items and practices. For example:

• Have your creditors given you high ratings?
• How many accounts are 30 days or more past due?
• Do you have unpaid accounts and collections?
• Have you recently paid off any loans or other debts?
• Do you have low balances on your open accounts?
• Are there liens against your property?
• Have you filed for bankruptcy?

The list goes on and on. Added together, these points generate your credit score.

It can take three months or more to see a rise in your credit score after you have taken a positive action, while negative practices can impact your score immediately. Scores are affected by late payments, paying off of collection accounts, and closing or opening of new accounts. Depending on the scoring method used, scores range from 0-999 points. The most popular systems use scores that fall between 300-900 points.

Creditors typically view higher scores as evidence of the borrower's stability and reliability. Scores of 620 or higher are considered "good" -- i.e., creditors believe that you will repay them. Scores lower than 620 are considered riskier. We discuss “good" scores in the section, Good Credit vs. Bad Credit.

Creditors have their own levels of risk they will accept. Keep in mind that your score is not the sole component of your application that a lender will use when determining whether or not to extend credit to you.

In addition to the credit bureaus' scores is the FICO score. Developed by the Fair Issac Corporation, it is the most widely used credit score, and is different from other scoring methods in that it factors in all the information contained in your entire credit record: information from the "big three" credit bureaus, as well as information from smaller bureaus that the "big three" might not report.

FICO scores are based on five factors, weighted in importance accordingly:

• 35% - Payment history
• 30% - Amount of debt owed
• 15% - Length of time you have had open accounts with creditors
• 10% - Inquiries into your report
• 10% - Types of credit accounts you have open

The credit score you receive in credit reports issued by a "big three" bureau will not be a bona fide FICO Score, which will range from 0-850. To receive a copy of your FICO score, contact Fair Issac directly through its Website.

The Fair Issac Website offers a simulation game that enables you to learn more about how certain actions -- for example, paying a past due debt, or being late with a payment -- affect your credit score.