Understanding the credit score rating system is of the essence for anyone who uses or wishes to establish or restore credit. And you don’t have to know all the intricacies that go into calculating your score; just the basics will do.
The basics of the credit scoring system are not that difficult to understand. This information used to be a closely guarded secret until an act of congress forced Fair Isaac, the creator of the most used credit scoring model, to disclose it. Previously, consumers were forced to fly in the dark, as it were, on something that has such a great impact on their lives.
Defined in simple terms, your credit score is a three digit number that indicates your creditworthiness. Needless to say, a lower score indicates bad risk and a high score indicates good risk.
The patriarch of credit scores is the FICO score as it is the one that most creditors use. And though you typically will get this score when you apply for credit, not all credit bureaus supply it directly to consumers. Only two companies can supply you the real FICO credit score.
The FICO score was created by Fair Isaac Corporation and as you might have guessed, the name FICO is actually an acronym of its creator. It is a number between 300 and 850.
There are pretty few people on either extreme of the score. Most people fall somewhere in between. And it is okay to attempt to attain the perfect score, 850, but it is not all that important and could cause you unnecessary stress. What really matters is the range you are in.