The credit score is a number that is supposed to indicate the risk that an individual will default on payments (like rent).  The credit score is sometimes known as a “FICO” score (named for the biggest credit-scoring company, Fair Isaac Corporation).  Only Equifax uses the “real” FICO score: TransUnion and Esperian use their own, similar scoring methods.  A bare-bones credit report won’t include a credit score, but you can order one for a little bit extra (with some reporting agencies, you’ll have no choice but to pay for one.)  The true value of a FICO score is debatable, as explained below in “What does the score really tell you?”

Fair Isaac uses several factors when generating credit scores-but interestingly, income is not a factor.  The issue is how people manage what they have, as evidenced by:

#1 The individual’s on-time bill-paying history (about 35% of the score).

#2 Amounts owed on credit accounts (about 30% of the score). Fair Isaac looks at the amount owed on all accounts and whether there is a balance.  They are looking to see whether the consumer manages credit responsibly.  It may view a large number of accounts with high balances as a sign that the person is over extended.

#3 Length of credit history (about 15% of the score). In general, a longer credit history increased the score.

#4 Any new credit (about 10% of the score.) Fair Isaac likes to see an established credit history without too many new accounts.  Opening several accounts in a short period of time can represent greater risk.

#5 Types of credit (about 10% of the score).  Fiar Isaac is looking for a healthy mix of different types of credit.  This factor is usually important only if there is not a lot of other information upon which to base a score.