Good Bad Credit Score

If you have ever gone for requesting a loan online, then you must be wondering how it was cleared that fast whereas you’re contemporary loan receiver is still waiting for the same amount to be cleared. The answer is in your FICO credit score.

In general, this credit score is generated by algorithmic formula which is top secret. This involves comparison of the info provided in your credit report with that of another person, and the use of a certain comparison scale. This credit score range runs from 300 to 850, and can be used for mortgages, car loans, credit card rates, insurance rates, job offers, etc. Being a simple calculation, those who have lower credit scores get higher interest rates than those possessing higher FICO scores.

In order to standardize this process, the Fair Isaac Corporation (FICO), has developed the first good and bad credit score range using scales of certain standards for different parameters. It is accepted as a base platform by almost all credit scoring organizations of the world.

Generally the factors for credit scoring vary, but usually FICO scores above 700 are considered to be good credit scores. While lending, it is generally believed that the borrower is higher risk having credit scores between 600 and 700. If you are in this range, you will have to pay higher interest rates for your credit cards and insurance rates.

If you happen to fall below 599 to 300, you have a poor or even bad credit score. You will need to pay your bills on time and lower your total amount borrowed. Making late payments can cost you severely.

It’s not uncommon for your FICO credit score to drop a 100 points or more due to late payments. If you miss several payments in a row, your credit score could drop down the scale 200 to 300 points or more in a very short period of time.

There are 20 different factors as per FICO scoring model that affect the credit score. Your payment history narrates your recent activities and plays an important part of the score (about 35%). 30% of your total score is dependent on the amount you owe and the credit available. Length of credit history accounts for 15% of it. The number of credit accounts opened makes 10%. Your mix of credit types accounts for about another 10%.