Last Updated: March 6, 2009
You've no doubt seen online advertisements asking you what's your credit score. Is it excellent? Is it good? Or is it poor? That answer to that question is important. According to AnnualCreditReport.com, "a credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service — specifically, the likelihood that the person will make payments on time in the next two to three years. (The score ranges from 300 to 850.) Generally, the higher the score, the less risk the person represents."
If you're like most people, you may not know your credit score or how it's calculated. You should. "A credit score (your FICO score) is a complex mathematical model that evaluates many types of information in a credit file," according to AnnualCreditReport.com. Your payment history accounts for 35 percent of your score; amounts owed, 30 percent; length of credit history, 15 percent; new credit, 10 percent; and type of credit, 10 percent.
You should also know changes in the so-called FICO score are on the way. In January, Fair Isaac Corp. rolled out a new FICO scoring system. The new system, called FICO 08, incorporates a new forecasting model that makes it easier to determine the likelihood of you defaulting on a loan. The new system also examines payment patterns and will be more forgiving if you are in arrears in one area but not others. In fact, in some cases, your FICO score could improve under the new scoring system. According to Money-zine.com:
"If you have at least one major account in delinquency, but you also have a number of accounts in good standing with creditors, then your credit score would likely increase / improve with the new model.
"If you have at least one major account in delinquency, and you demonstrate a poor payment pattern with several other accounts with creditors, then your credit score would likely decrease / deteriorate with the FICO 08 model."
To learn more about how the new scoring system might affect your FICO score, visit:
