Credit Score Scale 2012

For an economy to function smoothly, there has to be a consistent influx of liquidity, which is infused by financial institutions. If it weren't for open credit lines made available by banks, most of the businesses we see prospering today, may never have taken off. The recent economic recession has taught us the perils that careless use of credit lines can land people in. In this era of multinational corporations going bankrupt, banks are more careful in analyzing loan applications and one of the details which they pay close attention to, is the credit score. The aim of this Buzzle article is to present the credit score scale (2012), which will help you decide where you stand in the eyes of bankers, who scrutinize creditworthiness, based on a person's past credit usage, that is represented by credit scores.

About Credit Score Ratings

Prior to presenting the credit score scale, let me explain what the concept of credit score is all about. The idea behind its introduction is quite simple. Banks, credit unions and other finance institutions need an objective criteria for analyzing the creditworthiness of any person, who is applying for a line of credit. That's what the provision of a credit score accomplishes in USA.

Experian, Equifax and Transunion are the credit bureaus responsible for the assimilation of financial and credit usage related data of all individuals in USA and the calculation of credit scores, based on that data. They all use the FICO algorithm for calculating credit scores, which takes many variables like credit history, outstanding debts and past credit usage into consideration. You can get your FICO credit scores from any of these bureaus. When you apply for loans, the finance institutions scan your credit report and credit score rating to determine your ability to repay them.

The credit score rating scale maximum and minimum stretches from 850 to 300. While the highest credit score possible may be totally unattainable, anything in its vicinity is considered to be an excellent credit score. Depending on the credit usage history, your score could be anywhere in the credit score range(2012) presented below.

Credit Score Determinants

To maintain a good credit score, you need to understand the determining factors which decide its value. Knowledge of these factors will help you understand how your day-to-day financial transactions can impact your creditworthiness. Here are the factors which directly affect your credit score rating.

Determining Factor	Weight Percentage	Description
Payment History	35%	How particular have you been in paying your credit card bills, loan installments and dealing with any form of debt, does affect your credit score. Bankruptcy, court cases and delayed debt payments can adversely affect your credit rating. On the other hand, timely debt payments and a clean financial record will boost your score. The time interval since your last outstanding debt payment, bankruptcy, the number of debt items also influence the score.
Debt/Amounts Owed	30%	Next most important factor that affects your credit score are the amounts of money you owe on each of your financial accounts. The proportion of credit usage in relation to your credit limits on every account and the total amount of loan installments pending on your accounts is taken into consideration.
Credit History Length	15%	The overall length of time over which you've used credit lines and your banking accounts also influences the score. A prolonged good record of good credit usage helps boost the score.
New Credit Lines Used	10%	The number of new credit lines used or banking accounts, which you have recently opened, impacts your score.
Credit Types Used	10%	The range of different credit types used will also influence the credit rating. The way you've handled various types of credit, is also taken into consideration.

The financial data which the FICO algorithm uses to calculate your credit score, is derived from credit reports. Let us see how credit scores are perceived by financial institutions.

Credit Score Scale (2012)

Before applying for a loan, it's essential that one refers to the credit score scale (2012) presented below, as it will give you an idea about the odds stacked against your loan application's safe passage.

Credit Score	Description
730 - 850	Excellent
700 - 729	Great
670 - 699	Good
585 - 669	Average
300 - 584	Bad

If you fall in the bad credit score range, be ready for a tough negotiation session with the bankers. If you find yourself in the average credit score or good credit score category,you can be a bit more hopeful. Falling in the excellent credit score category, will put you in the league of people who are considered most favorably, when applying for loans with banks. Credit score is not the only factor upon which, banks base their decision. They will consider your current financial position, present earning capacity, the collateral you are willing to offer and the potential of your business endeavor if any, before they make a decision.

The credit score scale (2012) presented above shows how any credit score is perceived by banking institutions. It's not that individuals with bad credit score won't be able to get loans, but the terms and conditions, including interest rates charged, could be more harsh than normal. In case of a bad credit score rating, a bank may also demand collateral. On the other hand, if you have less baggage in the form of past bad financial karma, you may actually end up with a good credit score, which will make your life easier, when applying for loans. An excellent credit score will see to it that finance institutions open their doors wide open for you! Look at the credit score scale chart presented above and see where you stand right now and decide where you would want to be in a year's time. Create a financial management plan which will help you improve credit scores to higher levels in the future.