A credit score is a numeric representation of an individual’s trustworthiness to repay a loan. It is a 3 digit score ranging between 300 to 850 that determines an individual’s creditworthiness. Between 300-629 is considered bad, 630-689 is fair, 690-719 is good, and 720-850 is excellent.
This is based on a credit report which is usually issued by one of the 3 major credit bureaus – Equifax, TransUnion, or Experian.
The most common type of calculating credit scores in the United States is a FICO score. This scoring method was developed by FICO which was previously known as the Fair Isaac Corporation.
Credit scores and credit histories are of pretty big importance to lenders and mortgage providers. It allows them to mitigate losses by evaluating the risks involved with certain borrowers. This helps evaluate who can qualify for a loan, what interest rates will be offered, and other conditions of the loan or mortgage.
A credit score are built up by several different factors which build up a score. This includes payment history, types of credit, new credit lines, utilization of credit, and length of credit history.
While credit scores are usually used by lenders, other companies and organizations use them as well. This can include landlords, insurance companies, government departments and sometimes even mobile phone companies.
Individuals with low credit scores can improve them over time. There are agencies that focus on improving credit scores for individuals. Alternatively, an individual can do so on their own, by settling debt, increasing credit limits, and other actions.