FICO Credit Score Range Definition
Credit scores are a measure of creditworthiness based on financial transactions and debt repayment reported to credit agencies. The Fair, Isaac and Company (FICO) credit scoring system was started in 1958, and has become the nation's primary financial scoring system for determining an applicant's ability to receive loans or other financial services. Your personal FICO score is derived from your payment record and general level of indebtedness.
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Function
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The FICO credit scoring system is a mathematical formula designed to evaluate the risk a lender assumes when making a loan. The scoring formula factors in your payment history, collection accounts, high balances, number of credit card accounts, income-to-debt ratio, time on your present job and time at your current address. The formula is does not allow credit reporting agencies to factor in information such as race, gender, national origin or if you are receiving public assistance.
Highest Score
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The highest possible mathematical score is 900. Few people will ever earn the highest possible score because of all the factors that go into calculating FICO scores. If you have a score of 730 or more, creditors will consider you a good credit risk and your chances of receiving a loan you are seeking will be very high. A credit score of 690 should not cause you any trouble gaining credit from most creditors.
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Lowest Score
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An individual's credit score is an indication of willingness and ability to pay debts and financial obligations. The lowest possible score you can have is 300, which is an indication of a poor credit risk. The lowest range of scores that will be accepted by financial institutions to borrow money or make purchases on time is 620 to 650. Consumers with lower scores need to make a concerted effort to pay bills on time and limit the number of times they apply for credit.
Improving Scores
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Time is the key factor for improving a low credit score. Collection reports remain on your credit report for seven years, and negative information from public records such as bankruptcies remain on your credit report for 10 years. The most important action that will improve your score is paying your bills consistently on time over a long period. Consumers also improve scores by staying on the same job and living at the same address for five years or more.
Updated Scoring
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The updated FICO credit reporting system is called FICO 08. FICO 08 will provide an improved formula for determining a consumer's credit score, and is expected to provide a more accurate picture of your credit status. The new formula will deduct fewer points for occasionally being late on payments, but will increase deductions for people who are consistently late making payments. The practice of putting another person's name on a credit card to try to raise that person's credit score will no longer be effective.
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References
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