What is a credit score?

A credit score is a number based on a statistical analysis of a person’s credit file. This score represents the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information. Lenders use this score to evaluate the potential risk and use it to qualify a consumer for a loan and at what interest rate.

Here is what MyFico.com says about credit scores:

When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you. FICO® scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve your FICO scores can help you qualify for better rates from lenders.

For your three FICO scores to be calculated, each of your three credit reports must contain at least one account which has been open for at least six months. In addition, each report must contain at least one account that has been updated in the past six months. This ensures that there is enough information – and enough recent information – in your report on which to base a FICO score on each report.

About FICO scores:

Credit bureau scores are often called “FICO scores” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by the major credit reporting agencies.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the credit score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.

Other name for FICO scores:

FICO scores have different names at each of the credit reporting agencies. All of these scores, however, are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

Credit Reporting Agency	FICO Score
Equifax	BEACON® Score
Experian	Experian/Fair Isaac Risk Model
TransUnion	EMPIRICA®

More than one credit score:

In general, when people talk about “your score”, they’re talking about your current FICO score. However, there is no one credit score used to make decisions about you. This is true because:

• Credit bureau scores are not the only scores used: Many lenders use their own credit scores, which often will include the FICO score as well as other information about you.
• FICO scores are not the only credit bureau scores: There are other credit bureau scores, although FICO scores are by far the most commonly used. Other credit bureau scores may evaluate your credit report differently than FICO scores, and in some cases a higher score may mean more risk, not less risk as with FICO scores.
• Your credit score may be different at each of the main credit reporting agencies: The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the credit reporting agencies are different, it’s probably because the information those agencies have on you differs.
• Your FICO score changes over time: As your data changes at the credit reporting agency, so will any new credit score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today.

What’s not in your FICO score?

FICO scores consider a wide range of information on your credit report. However, they do not consider:     

• Your race, color, religion, national origin, sex and marital status: US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
• Your age: Other types of scores may consider your age, but FICO scores don’t.
• Your salary, occupation, title, employer, date employed or employment history: Lenders may consider this information, however, as may other types of scores.
• Where you live.
• Any interest rate being charged on a particular credit card or other account.
• Any items reported as child/family support obligations or rental agreements.
• Certain types of inquiries (requests for your credit report): The score does not count “consumer-initiated” inquiries – requests you have made for your credit report, in order to check it. It also does not count “promotional inquiries” – requests made by lenders in order to make you a “pre-approved” credit offer – or “administrative inquiries” – requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.
• Any information not found in your credit report.
• Any information that is not proven to be predictive of future credit performance.
• Whether or not you are participating in a credit counseling of any kind.

Now you know the basics of a credit score.

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