What is Credit?

What Is Credit?

Often people hear the word “credit”, “good credit”, “bad credit”, “credit score”, “FICO”, but have no idea what these words actually mean. When you search the internet for answers, you are often misled because websites will contradict each other. In order to gain a better understanding of these words, BR Finance Solutions has written a simple article without the nonsense or any inaccuracies.

When someone is discussing a person’s credit, the accountability of the person is being discussed. In other words, how likely you are to pay back the money you borrowed as agreed. In order to determine your likeliness the following questions may arise -

Did you pay back the money when it was due?

 Are you only paying the interest (fee charged to borrow the money) or are you paying back the principle (the money that was borrowed without any fees for doing so) as well?

Also, what is your current income and how long have you worked at the job?

Last, but not least, how much do you actually owe in relation to how much money you are allowed to borrow?

After these questions are answered, you are deemed to have either “poor credit”, “good credit”, “excellent credit” or anything in between based upon a three digit number that you were assigned. This number is known as your FICO (Fair Isaac Corporation) score a.k.a. credit score. Good credit is then defined as someone who not only pays back the money on time, but also pays more than the minimum monthly payment and has not maxed out the amount of money that can be borrowed. The term “good credit” is then given a number. A person with “poor credit” may have missed payments, only pays the minimum monthly payment, had too many “hard” inquiries (businesses checking your credit history) versus “soft” inquiries* which don’t affect your credit. A person with “excellent credit” demonstrates to lenders that you not only pay on time, but pay more than the minimum amount and pay it back quickly.

According to recent data, the U.S. national average FICO score is 695 which falls into the “good credit” category. Please be aware that each lender has its own credit risk standards, but the following data will provide you with a better understanding of what those FICO scores actually mean.

Very Poor: 579 or below              Poor:  580 - 669            Average:  670 - 739            Good:  740 - 799           Excellent:   800+

Once you are aware of these terms and what they mean it is a good idea to find out your current credit score.  This way you know which category you fit into and can improve your credit score if necessary.  In order to obtain your FICO score, you can go to and find out today.

For more information on obtaining a credit report and what the report means, read The Importance of a Credit Report.