Does The Method For Calculating Credit Scores Seem Fair To You? Why Or Why Not? (2023)

FAQs

Is the credit score system fair? ›

Numerous studies have found racial disparities in credit scoring: 1996 study found African-Americans were three times as likely to have FICO scores below 620 as whites and that Hispanics were twice as likely. 1997 study found Black, Indigenous, and people of color [BIPOC] neighborhood consumers had lower credit scores.

A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix. Your record of on-time payments and amount of credit you've used are the two top factors. Applying for new credit can temporarily lower your score.

A fair credit score is generally considered to be a FICO^® Score^☉ of 580 to 669 or a VantageScore^® score of 601 to 660. Credit scores often range from 300 to 850, which puts a fair score in the middle of the scoring range. However, the average FICO^® Score was 714 in 2022, according to Experian.

Only FICO Scores are created by the Fair Isaac Corporation and are used by 90% of top lenders. Why? Because FICO Scores are the industry standard for making accurate and fair decisions about creditworthiness. They help millions of people get the credit they need for a home, a new car, or a special purchase.

Fair credit is considered 630 to 689. A good score starts at about 690. Credit scores aren't fixed, so there's always an opportunity to build yours. The time it takes to move your fair credit to good credit depends on your score, the negative information on your credit report and what steps you can take.

A score of 690 to 719 is considered good credit. Scores of 630 to 689 are fair credit. And scores of 629 or below are bad credit.

Credit scoring models generally look at how late your payments were, how much was owed, and how recently and how often you missed a payment. Your credit history will also detail how many of your credit accounts have been delinquent in relation to all of your accounts on file.

A credit score is usually a three-digit number that lenders use to help them decide whether you get a mortgage, a credit card or some other line of credit, and the interest rate you are charged for this credit. The score is a picture of you as a credit risk to the lender at the time of your application.

Generally speaking, scores between 690 to 719 are considered good in the commonly used 300-850 credit score range. Scores 720 and above are considered excellent, while scores 630 to 689 are considered fair. Scores below 630 fall into the bad credit range.

What is fair to bad credit score? ›

On the FICO^® Score^☉ 8 scale of 300 to 850, one of the credit scores lenders most frequently use, a bad credit score is one below 670. More specifically, a score between 580 and 669 is considered fair, and one between 300 and 579 is poor.

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan. There's a lot to learn about credit scores and credit reports and having more than one credit score can get confusing.

Payment history (35%)

The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score.

The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan.

The FICO^® Score is used by 90% of top lenders, but there are at least 16 versions of that model in use. Checking the widely used FICO^® Score 8 can give you a good indication of how lenders will view your credit profile.

America's credit reporting system is broken. We saw the latest evidence of this last week, when news broke that Equifax sent lenders millions of incorrect credit scores, some of which were off by at least 25 points, for consumers applying for auto loans, mortgages and credit cards.

Credit scores are supposed to show how creditworthy someone is, but they can be a flawed measure of creditworthiness because they don't account for the many factors that affect someone's ability to repay their debt.