What's a Credit Score?
Simply stated, a credit score is a number calculated on a mathematical formula (or 'algorithm') that predicts how likely you are to pay back a loan, vs. being delinquent or even filing for bankruptcy. This number basically summarizes your credit history against millions of others, and "scores" it.
Your credit score is used by banks, credit card companies and other lenders to help determine if you qualify for a loan, at what interest rate, and what credit limits, especially for an unsecured loan (a loan not backed by tangible assets or collateral). The higher the score, the better chance you'll have of being approved for a loan, especially a private student loan.
FICO is an acronym that stands for Fair Isaacs Co., a company that offers its credit scoring system via through Equifax. The other credit bureaus may use the FICO "brand" in their own algorithms, but their scores can be different than the FICO. All 3 bureaus are well-recognized, so lenders (and you) can rely on the scores from them.
Where Do Credit Scores Come From?
There are three major credit reporting agencies, also known as credit bureaus, that provide credit scores: Experian, Equifax and TransUnion.
The Pervasive Impact of Credit on Your Life and Ours
Have you ever wondered how much your credit history is used in our lives? Think about all the credit-based tools available to us throughout all phases of our lives: credit cards, mortgages, car loans, and of course, private student loans.
But did you know it also could have an impact on whether you get hired or not, getting a loan to start your own business, joining the armed forces or obtaining a professional license?
Or that a poor credit score could cost you more in higher rents, higher insurance rates?
The FICO score ranges from 300 to 850, where 300 is dreadful and 850 is top of the line. Most people tend to score in the 600s-700s. However, most college students don't have a sufficiently long credit history or high-enough income to generate a high credit score. As for what a good score is vs a bad one, there are no hard-and-fast rules; it depends on the lender and type of loan desired.
However, as a rule of thumb to qualify for a private loan, a score of 660 is usually the minimum.