A credit score is a numerical index which represents an estimate of an individual's financial creditworthiness.
Lenders, such as banks and credit card companies, use credit scores to determine credit limits and interest rates.
The best-known credit score in the United States is the FICO score calculated using mathematical formulae developed by the Fair Isaac Corporation. The three major American credit-report agencies (Equifax, Experian and Trans Union) all use variations on this scoring formula under different names, the best-known of which are the Beacon score and the Emperica score.
FICO scores and its variants are designed to measure the risk of default, by taking into account variables such as (in decreasing order of importance):
- punctuality of payment in the past,
- current ongoing debt,
- ratio of current ongoing debt to remaining available credit,
- length of credit history,
- types of credits used,
- amounts of credits applied for in the recent past.
Current income and employment history do not influence the FICO score.
FICO scores range from about 300 to 850 and exhibit a left-skewed distribution with a median around 725. A score above 720 is considered to be "good credit", and a score below 600 is considered to be poor.
In September 2004, a Texas utility company began setting individualized electricity prices based on credit score. [1]
In accordance with the Freedom of Information Act (FOIA), people can access their credit scores if they wish (though usually at a cost), and many online services exist whereby people can check their scores over the Internet.
Recently, some of the agencies which generate credit scores have also been generating insurance scores , which insurance companies then use to rate the quality of potential customers.
External links
Last updated: 08-29-2005 12:01:15
