There are three numbers that will define you throughout your adult life; your age, your social security number, and your credit score. It is essential that you know and protect them all.
Most people are familiar with the term FICO Score, named for the Fair, Isaac, and Company founders. FICO is a scoring system that measures credit risk and worthiness. Since its introduction in 1958, use of the scoring system has spread nationwide and is the most commonly used measure for establishing credit. Credit scores are determined by five factors; payment history, outstanding debt, credit history, new history, and a miscellaneous factor that considers factors like types of outstanding debt.
Today, a consumer’s credit score can be attained through the three major credit bureau’s; TransUnion, Experian, and Equifax. The credit bureaus collect information on credit lines and payment history which is applied to the FICO formula to calculate a consumer’s credit score. Credit scores range from 300 to 850.
Currently, the national average credit score is as of April 2015 is 736. Nationally, 60% of the population have a credit score of 700 or better. Credit scores have been recently improving, following a period of decline as a result of the recent recession.
A new credit measure, developed by the three major credit agencies, is being introduced to provide more consistency between bureaus and improve credit ratings. The VantageScore has a range of 501 to 990, with higher scores indicating less risk and more creditworthiness. The system is also developed to help evaluate newer credit consumers, making it easier to determine their credit risk. There are also five factors to the VantageScore formula; payment history, recent credit, and balance are aligned with the FICO measurement. Depth of credit, which consider the mix and information availability of credit information slight differs from the FICO formula. An additional factor is also included, available credit, which includes a measure of the consumer’s access to credit.
Of your three major life numbers, only the social security will stay the same. Age, as long as we are fortunate, will continue to increase. With proper management, so will your credit score will also increase, although it could go either way. The way to move your score in the right direction is the keep bills paid on time, decrease debt, decrease outstanding credit, and avoid applying for new credit.