Good Credit Score Factors

“What is a good credit score?” This is no doubt the question that all of us may have asked at one time or another when applying for a loan or getting denied credit. Indeed, what is a good credit score? Well, we won’t know the answer to that unless we first understand the concept of credit scoring.

What is Credit Scoring?

Knowing what is a good credit score starts with knowing what scientific method is used to arrive at a credit score. Credit scoring is that scientific method. Depending on the credit reporting agency, the method makes use of several statistical models in order to assess a person’s “credit worthiness.”

What Does a Credit Score Include? What does it not Include?

The next step in knowing what is a good credit score is to know what are and are not included as determining factors. While there is no specific mathematical method used in the credit scoring system, owing to the fact that credit reporting agencies use different systems of credit rating, there are however general factors that are included and factors that are expressly prohibited by federal law.

The factors used to arrive at your credit score include:

* Payment history
* Amounts owed
* Length of credit history
* New credit
* Types of credit used

On the other hand, the factors that are not included:

* Your race, color, religion, national origin, sex and marital status
* Your age
* Your salary, occupation, title, employer, date employed or employment history
* Where you live
* Any interest rate being charged on a particular credit card or other account
* Any items reported as child/family support obligations or rental agreements
* Certain types of inquiries (e.g., consumer-initiated inquiries)
* Any information not found in your credit report
* Any information that is not prove to be predictive of future credit performance
* Whether or not you are participating in a credit counseling of any kind

The law has expressly prohibited credit reporting agencies from using any of the immediately preceding factors in order to calculate your credit score. If lenders are found to base their loan decisions on any of these factors, it would be discriminatory against you and the lender may be held liable. This is because the above factors do not any way show how you would perform about your credit in the future, so it would be unnecessary, not to mention invasive to use these factors to calculate your credit score.

What are the credit ranges?

Now that you know what factors are used to calculate a credit score, learning about credit ranges is the next step to answering your question of what is a good credit score. Although credit reporting agencies have their own unique systems of compiling scores, there are, however, normative ranges used so that a score of 700 from Equifax may indicate the same credit worthiness with Trans Union and Experian.