In the world of personal finance, everybody at one point or another needs to obtain loans to finance important purchases and further major life goals. As any good loan consumer knows, a higher credit score is a necessity in order to qualify for the highest credit limits and best loan conditions. However, in order to know if you have a good credit score, it helps to understand how your score stacks up against the average Joe and to have a basic understanding of how credit reporting works.
Definition
A credit score, properly called a FICO (Fair, Isaac and Company) score, is a single number representing an individual's financial trustworthiness, according to financial guru Suze Orman.
Score Range
FICO scores are, according to Orman, measured in points and range from 300 to 850.
Agencies
There are three major reporting agencies, which provide the credit data used in calculating FICO scores: Equifax, Experian and Trans Union.
Score Breakdown
FICO scores are determined based on the following factors: prompt repayment of debts (35 percent of the score), current debt (30 percent), the length of your credit history (15 percent), the kinds of credit you use (10 percent) and how much credit you have recently applied for (10 percent).
Average Credit
The average FICO score in the United States is 678, according to Experian.
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