Free Credit Score – What is a Good Credit Score?

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A credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.

Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, employers, landlords, and government departments employ the same techniques.

One first has to determine exactly what type of score one is referring to. There are numerous scores sold in the marketplace. FICO produces scores used by TransUnion and Equifax and has been a score developer the longest. Experian has abandoned this scoring model and relies on their less-popular “PLUS” system. The 3 companies also use VantageScore, a competing score technology to FICO. Finally, there are other scoring systems such as TransUnion’s “TransRisk” or Experian’s “ScoreX”. These are educational scores in that while not used by lenders for underwriting loans, they do provide insight into how scores are calculated.

In the United states, FICO Credit scores range from 300-850, with 723 being the median FICO score of Americans. FICO scores below 600 are considered high risk borrowers, 620 being the dividing line between good and bad, 640 or above being “pretty good”, 650 as average general credit-use behavior, and above 690 or 720 being excellent. Scores are based on payment history, outstanding debts, credit history, new credit, and credit in use. In addition, Experian’s PLUS score system ranges from 330-830, and the VantageScore ranges from 501-990. The variations can be easily confusing to consumers.

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