What is your Credit Score?

What is a Credit Score?

What most persons refer to by the term "credit score" is one's FICO score. FICO scores were developed by the Fair Isaac Corporation in the mid-20th century to help lenders develop a relatively predictable (by which they mean "mathematical") model of future action on the part of borrowers. In the 1980's Experian, Equifax and Trans Union developed the scoring systems that serve as the authority for at least 70% of lenders today (Fair Isaac 2005, 1).
The two most basic kinds of scores are common (a.k.a., generic) and custom scores. Common scores are those recognized and used by a variety of lenders, whereas, specific lenders who draw upon credit reports and other personal information such as employment and lending history in order to measure one's credit worthiness calculate custom scores.
What is the Range of Available Credit Scores? How Do I Know What Constitutes a Good and Bad Score?

The range of scores that one can obtain on a credit report varies by the kind of report in question. In general, scores can range anywhere from 925 on the high end (meaning "Excellent") to 300 on the low end (meaning "Very Poor"). The higher one's score, as lenders see it, the more likely one is to be a worthy borrower. Conversely, the lower one's score is, the more likely they are to be an unworthy borrower. As mentioned before, however, each of three credit reporting agencies has a slightly different model that it follows. Thus, it best to consult each of the three credit agencies for a better understanding of what constitutes a good or bad score. As TransUnion notes (TransUnion, 2005):

Each lender decides what credit score range it considers to be a good credit risk or a poor credit risk. For this reason, the lender is the best source to explain what your credit score means in relation to the final credit decision. After all, they determine the criteria used to extend credit.
Fair Isaac categorizes score ranges using risk verbiage (Fair Isaac 2005):

Low Risk 780-850
Medium to Low Risk: 740-780
Medium Risk: 690-740
Medium High Risk: 620-690
High Risk or "sub-prime": Less than 620

The score ranges for three credit reporting agencies vary accordingly:
Experian: "The Experian credit score ranges from 340 - 820 with a higher score indicating lower risk." (Experian 2005)

TransUnion: TransUnion ranks its credit scores with descriptive variables with the being "very poor" and the highest being "very good." Author's note: The Transunion range has an overlapping feature to its ranking which also illustrates the shadowy" nature of credit scores. As seen below the same score, e.g, 775, falls somewhere between the Good and Very Good rankings. The author obtained these ranges from a review of his personal credit reports. Individual consumer results may vary.

Very Good: 760-925
Good: 700-835
Fair: 610-735
Poor: 535-640
Very Poor: 400-550

Equifax: Similar to the TransUnion verbiage, Equifax employs a "poor" to "excellent" range in ranking its scores. Author's note: Here again one sees a variance in how scores are ranked. Furthermore, I know of at least one instance wherein a "Good" ranking based on the numbered system provided by Experian below was nevertheless categorized by them as "Poor." The author obtained these ranges from a review of his personal credit reports. Individual consumer results may vary.

Excellent: 800-850
Good: 750-800
Fair: 650-750
Poor: 300-650


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