A credit score is a number that represents your calculated measure of credit risk. These credit scores are the result of a complex mathematical formula that takes into account numerous factors in your credit history. Put simply, your credit report is scored against millions of other people's reports, generating consumer credit scores. Your score is very important because it can determine your financial future. More specifically, your credit rating can affect whether or not you can obtain
A lender may also use your score to calculate the rate you get for a loan; the lower the scores, the higher the interest rate you'll be charged. So over time, maintaining good scores can save you lots of money. Lenders look at your report as a prediction of how likely you are to make your payments and make them on time.
In addition, potential employers may do a credit check for employment to determine whether you're financially responsible. And landlords often do a check for renters.
These scores have done a lot for borrowers. Lenders used to come up with their own criteria for calculating interest rates - now borrowers with good credit (and therefore, good scores) get rewarded for financial responsibility with lower interest rates.
Most scores range from 300 to 900, with the majority of people in the 600 to 800 range. To get the most favorable interest rates, you'll need a score of 720 or higher. In terms of interest rates, on average, a person with a credit score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a score of 720.
Factors that can damage your credit report include late payments, an absence of credit references, and unfavorable credit card use.
The first step to improving your score is finding out what it is. Then you can take the necessary steps toward a better score.
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