Understanding Credit Scores

Credit scores can determine how much it will cost you to get credit and even if you can get credit at all. Wondering why a single number is so important and how it all works? Well, let's take a closer look...

Understanding your credit score is important to maintain or repair your credit. Good credit is important, after all, there are a variety of different reasons that we end up having to apply for credit. We need credit to get student loans, a mortgage on a home, buying a car or even renting an apartment.

A credit report score is a number used to help lenders figure out whether they want to give you a line of credit or a loan. The score basically lets lenders take a look at the level of risk that you may be if they end up loaning you money. It allows them to predict how likely you are to make your payments on time and if you are really likely to repay the full amount.

Credit score ratings give the lenders an easier way to decide whether or not you qualify. If you do qualify, the score will also determine the interest rate the lender will charge you. This method is a whole lot faster than a credit report and basically provides the same information to the lender, just in the form of a single number.

How are Credit Scores Determined?

There are a variety of different scoring methods that can be used to calculate credit scores; however, the FICO score is used by most lenders and companies today. This method was designed by the Fair Isaac and Company, as well as the main credit bureaus, TransUnion, Equifax, and Experian. Get All 3 FICO Scores and Credit Reports!

A range of factors are taken into consideration when your score is determined. The following items are used to come up with your credit score: