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Credit score scale: how credit score is calculated

Credit score in general is dynamic numeric index that lies on a credit score scale and indicates risks of lending money to an individual. Dynamic means that your credit score changes in time, especially when some events occur in your financial life. Numeric means that your credit score can be somewhere on a scale between 300 and 850, which covers credit scores from poor to excellent credit.

With a good score you have more chances to get a cheap loan or a new credit card at reasonable rates, with bad you will hardly get any. No doubt good credit score can save you much money in relationship with banks, credit unions and other financial institutions. Moreover having good score is also required to rent a home, sign a cell-phone contract, get a credit card and sometimes even get a good job.

Credit score scale overview

According to the score developer’s model (Fair Isaac) the average credit score is 723, but actual average American consumer’s rating is much lower. If you already know your current credit score value then check the scale  below to find out what is your score quality. If your discover that your score is below 620, it’s a bad sign – most lenders will not approve your credit card application. While rating over 720 makes almost any loans available to you with a very good terms.

If your score is less than 600 that means that you have a bad or poor credit. Most credit offers are not available to you. Consider rebuilding your credit. You can start from secured credit card or a prepaid credit card.

6oo-650 is an average credit like most Americans have. Not good, not bad, just think twice before getting a new credit card or applying for a loan – maybe it will be better to deal with existing debts?

650-700 - we are on a good territory, you will get credit cards and loans easily. Your interest rates will not be a burden.

700-750 and more – very good and excellent. All the banks will be happy to lend you money with the best terms and at lowest rates. Just make your choice to go with the best.

Who cares about your credit score?

In the United States a special Fair Credit Reporting Act (FCRA) regulates consumer reporting agencies (CRA) activity. 4 major credit reporting agencies (credit bureaus) in the US are the Experian, Equifax, TransUnion and Innovis. This institutions collect and keep consumer credit data and provide it to the stakeholders upon a request. A lot of banks and other financial institutions also collect this information for in-house use, but they cannot share it with outsiders. Mentioned Credit bureaus are non-government organizations that profit from sharing the information.

The list of parties, who can send and request credit information, is quite long and it includes the following: mortgage and auto lenders, banks and financial services companies, insurance, phone and energy companies, landlords and employers, government agencies and many others. that basically means that your credit score does really matter for the most parts of your everyday life.

How credit score is calculated?

Remember that credit score is a dynamic index? That means that nobody has a permanent credit score, actually this number is calculated every time when it is requested and it will usually vary from time to time. Major credit bureaus have their own formulas and algorithms how they do crunching the numbers, but all of them use almost the same main elements. Major factors that affect your credit score are the total amount of money borrowed, total time your credit history lasts and accuracy of your payments. New credits taken, current credit limit and amount of total debt are also significant.  Your educational level, property you own and lengths of your employment can be included, but they don’t affect scoring as much as money factors.

credit score pie chartMost lenders usually check two or three credit reports agencies to evaluate your credit behavior and the risk of lending you money. The reason why just one bureau information is not enough is that errors sometimes can occur in a report so they need to double check that. It’s good idea to check your score every year in order to fix all the errors if they exists and also to have actual information about your chances.  A good reason to do it is that once a year every person can do it free of charge.


Tell us what do you think.

  1. Stern D says: September 25, 2011

    Is somebody really responsible for my credit score? What if one of the credit agencies will make an error? I read a lot about bad things that happen by somebody’s mistake when processing your data.

    • Stella Brog says: September 25, 2011

      Yes, sometimes it can happen. You definitively need to check your credit score once a year to prevent that. And be patient – check all the transactions and be persistent to clear all the errors you will find (I hope you don’t”:))

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