Credit Scores and How They are Used

A credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. The higher your credit score, the better deal you’ll get on credit card interest. Your credit score determines how much you pay for life’s needs.

If you have previously applied for any type of loan or credit card or pay regular bills (such as a gas or electric bill), you have a credit history. A credit score is used to numerically describe your credit history. Credit scores can range from 300 (poorest) to 850 (best). A company called Fair Isaac maintains standards for calculating the FICO credit score. 

Consumer credit reporting agencies (Equifax, TransUnion and Experian) maintain a history of your repayments through the “consumer credit report”. Lenders and others can request your credit score when you apply for a loan or financial transaction, and can make a determination of your credit worthiness based on this information.

Your credit score directly or indirectly impacts almost every area of your life. Lenders use your score to determine what rate you will pay on business or personal loans and mortgages. Credit card companies can deny you credit if you have a poor score. Some insurers use your score in determining premium payments. Many landlords will check your score before approving your application for renting an apartment. Some employers can grant or deny you job opportunities based on your score. These are just a few examples of how credit ratings affect your life.