Credit Score

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The FICO credit score is expressed on a scale of 300 to 850, with higher scores being better. Scores take several factors into account, such as your history of timely payments, your current debts, and how many times you've applied for new credit. Here's how to figure out your own FICO credit score.

How your credit score is calculated

First of all, when I say "credit score," I'm referring to the FICO score. There are several credit scoring models, but the FICO formula is the most widely used, by far. Furthermore, each of the three major credit bureaus calculates the FICO score separately. Therefore, when you look at scores from Equifax, Experian, and TransUnion, your scores can be slightly different.

The actual FICO scoring formula is a closely guarded secret, but we do know the basics about how it's calculated. Your FICO credit score is made up of five specific categories of information, which each make up a certain percentage of the total.

  1. Payment history (35%): The largest category is the most straightforward. Simply paying all of your bills on time makes up more than a third of the FICO formula.
  2. Amounts owed (30%): There is actually a lot of information in this category. In addition to the actual dollar amounts of your debt, this category considers your debts relative to your available credit, and your loan balances relative to the original amounts. This data is considered on an aggregate basis (for example, your total credit card debt relative to your total credit line), as well as on an individual account basis.
  3. Length of credit history (15%): In a nutshell, the longer you've established a responsible credit history, the better your score will be. This category considers the age of your oldest account, the average age of all credit accounts, and the ages of individual accounts, just to name a few things.
  4. New credit (10%): The two main parts of this category are the number of credit inquiries and the number of new accounts opened. The FICO formula considers inquiries made over the past year, and fewer is better. Similarly, too many recently opened credit accounts can also be a negative factor.
  5. Credit mix (10%): This category considers the different types of credit accounts you use (mortgage, auto loan, credit card, etc.). The reasoning is that if individuals show they can be responsible with a variety of credit accounts, it should be a positive factor in determining creditworthiness.

What is considered a good credit score?

The short answer depends on who you ask, and what you're trying to buy. FICO scores range from 300 to 850, and most consumers are in the 500-800 range, and higher is better. Individual lenders tend to set their own cutoff points, or preferred minimum scores. For example, you can obtain a conventional mortgage with a FICO score of 620, but the best credit cards typically expect to see a 700 or greater.

Having said that, here are some general guidelines on how your credit could be perceived by lenders:

Credit Score RangeCredit Level
Less than 580 Poor
580 to 669 Fair
670 to 739 Good
740 to 799 Very Good
800 or higher Exceptional

Data source: www.myFICO.com.

For reference, the national average FICO score is 695.

Estimating your own score

It's impossible to know your actual FICO score without actually checking it, but it can be estimated fairly accurately by looking at some information. Here's a calculator that uses some data about your credit history and present credit usage to estimate your score.

 

* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Of course, this is just an estimate, but it seems to be pretty accurate. I entered my current information, and my actual FICO score is within the range it returned. For comparison, I also had my wife and a friend use the estimator, and their FICO scores are also within the calculator's stated range.

For the majority of situations, an estimate like this is fine to assess the quality of your credit. However, there are some circumstances when you might need to know your exact scores. For example, many mortgage lenders require a minimum score of 620, defined as the middle number of your three FICO scores. And, in most cases this is a hard line -- a 620 could get approved, but a 619 would not.

Most credit card issuers these days will tell you what your actual FICO score is, but keep in mind that this is just one of the three bureaus. If you want to see all three, you'll probably have to pay for it. My personal recommendation is myFICO.com. I use this service myself, as not only do I get all three of my scores, I also get some specific scores (like my auto loan-specific FICO score), and a score simulator that can predict the effect of future credit behavior. There are other services that offer the FICO score for purchase, so by all means shop around for the product that best meets your needs.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.