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A credit score is a measure given to an individual representing how creditworthy they are. This number is an indicator used by banks, insurers, credit card companies and many other businesses who require a figure advising how likely an individual is to repay debts or accounts. By accumulating a credit score a consumer makes themselves available to be viewed in a positive or negative light by these institutions when they make applications for credit-based financing or loans. With the recent influx of new lenders into the market due to technological advances, such as the tyranny of distance being overcome by increased mail and Internet services, cheap credit is far more available for consumers than at any stage previously, and a credit score is the quickest and easiest way of indicating creditworthiness to a lender.

Free credit score is something that is able to be calculated in regards to an individual, taking into account previous credit history, transactions, repayments and defaults.

The Fair Isaac Corporation (FICO) score is the most widely known and recognised credit scoring model used internationally. This Fair Isaac Corporation score is statistically calculated using customer credit files, including their credit history and repayments. The FICO score endeavours to present a simple and speedy representation of a potential customer to a bank, credit card company or other lending institution to decrease the likelihood of default on payments and increase business profit and efficiency. Higher FICO scores are representative of increased trustworthiness and likelihood of repayment, with credit applicants who have high FICO scores potentially being offered lower interest rates on loans, and the opposite also applies, with low FICO scoring individuals less likely to receive loans or may be forced to accept higher interest rates or rates of repayment if they are able to secure a loan.

The FICO score is calculated using a number of statsitical measures to generate an individual’s score. Payment history of previous debt, including bills, mortgages and credit cards contributes a significant percentage of FICO score calculation – in the case that an individual has previously made late repayments this will decrease their FICO score. The ratio of currently used credit, that is the amount of debt currently owed by an individual, as a fraction of their credit limit, also accounts for a significant portion of an individual’s FICO score – if a person is currently leveraged to the full extent of their available debt this will reflect poorly on their FICO score. A significant credit history , involving billing accounts, credit cards and mortgages positively affect a FICO score. If this credit history contains a variety of credit tools this also increases a FICO score, as an individual who balances a mortgage with credit card repayments and bills is viewed more favourably than someone who has only previously used a credit card. Consistent inquiries about new lines of credit is considered an undesirable trait in an individual, and decreases their FICO score, however several inquiries made in rapid succession are less likely to affect a FICO score. Money owed because of court orders or outstanding taxes is carries additional negative penalties on an individual’s FICO score too, especially if these occurrences are recent.

FICO scores range from 300 to 850, with the lower ranges of the score considered more likely to go greater than 90 days past due on obliged debts than those in the upper range of the FICO score.

Consumers are able to check their current credit score by making an inquiry to the relevant credit agencies, for example Veda Advantage or Dun and Bradstreet in Australia.

Credit scores provide a legitimate measuring tool for creditworthiness of individuals for lending institutions, despite some criticisms that indicators such as the FICO score can be manipulated by consumers. As a key representation of previous activities and historical action of a potential borrower credit scores can aid lenders in evaluating their potential customers.