By A credit score is an important three-digit number that reflects your level of riskiness as a borrower. It’s based on a level of analysis of your credit files, typically sourced from one or more of the major consumer reporting agencies, such as Experian, Equifax and TransUnion. Lenders use your credit scores to decide whether they will extend you a loan, and at what terms. Credit scores typically range from 300 to 850 and are based on various factors, such as your payment history and the amount of debt you’re carrying.
While you might think of your what is a credit score as a snapshot in time, they’re actually calculated with data that’s updated regularly. Credit reporting agencies compile this information into a report, which lenders then review. The information that’s used to calculate your credit score includes details on your current and past debt accounts, including their balances, your repayment history and the date the account was opened or closed. Lenders also look at the total amount you owe across all your debt and revolving accounts, as well as whether you’ve been paying your bills on time or late. In addition, your bankruptcy filing and collection items appear on your credit reports, which could lower your scores.
The credit scoring model that creates your score may vary slightly, but all are designed to help predict your likelihood of repaying a loan on time. The formulas behind the models might change periodically, as technology advances or simply to reflect new information that’s gathered. For example, you might have a FICO score and another lender might use VantageScore, or vice versa.
Your credit score is a key part of your identity and financial profile, and it’s typically considered a more accurate and useful tool for assessing a borrower’s creditworthiness than a credit report alone. A credit report is a detailed file of your credit history that contains personal and financial information, such as your name, address, social security number and more. Creditors and financial institutions, such as banks and credit card companies, report to one or more of the three major consumer reporting agencies, like Experian, Equifax and TransUnion. These bureaus then compile the information into a credit report that lenders and other businesses can review.
Credit scores are a product of these credit reports and, while lenders do not store them, they can be obtained by requesting your credit report from a consumer reporting agency. Credit reports are used by a wide variety of businesses, from banks and mortgage brokers to insurance companies and employers. Some even consider your credit history when making hiring decisions.
Your credit score is a key piece of the equation when it comes to applying for loans, renting an apartment or even getting a job. While it isn’t the only factor in your overall creditworthiness, it does play a significant role in determining whether you’re eligible for a loan or credit card, and what rate you might be able to get if approved. The key is to maintain a strong credit history with good payments and low utilization of your credit, so that you’re rewarded with the best possible credit score.
