Knowing your credit score means understanding it and knowing whether you have a good credit or not.

What is a Credit Score?

A credit score is essentially a number that is calculated using a host of parameters that are pertinent to an individual’s credit history. This provides a simple answer to the answer to the most important lender question which is ‘should I lend/ not lend?’ This number offers the lenders a glimpse into the risk factor associated with lending to a prospective borrower a specific amount of loan. A thorough examination of the credit report can also give the lenders an answer, but a credit score requires no analysis as it is less subjective in nature and is also quicker to assimilate.

The System

This is a point based system that awards pre-designated points based on all the information that is in the credit report of a prospective borrower or applicants. The resultant score is then compared with that of other consumers who have relative similarity in terms of profiles. Through this system, a lender easily discerns whether the lender is likely to repay the loan in the given time, or if he has the ability to repay the loan, etc. It is the credit score of a person that allows him or her to get instant credit, especially while shopping at departmental or electronic stores.

FICO Score

There are several scoring methods used by various scoring agencies, however the most popular amongst these is the FICO score, which most lenders swear by. The score gets its name as result of its origins with the Fair Isaac and Company that came up with this method of scoring, which is now commonly used by banks, business, and insurers. The FICO scoring method is fair and takes into consideration all the requisite parameters. The three major credit bureaus, namely, Experian, TransUnion, and Equifax, worked with Fair Isaac and Company to jointly come up with this scoring methodology.

Other Scores

As aforementioned, the three major credit bureaus and Fair Isaac, came together to develop the FICO score. But, all three have their own individualistic, credits scores as well. TransUnion has a credit score called the Empirica System, while Equifax has something called the Beacon System while Experian has the Experian/Fair Isaac credit score system. It must be understood that all three are based on the FICO system of scoring and numerical result is equivalent to the one obtained by FICO. There are a few lenders who have their very own scoring methods. The change in these methods is the addition or subtraction of various parameters. That’s about it.