What is a “Credit Score?”

Almost every time your credit is reviewed by an authorized party, they are looking at your credit history and your score to evaluate your credit risk. So what is a “credit score?”

A credit score is a number generated by a Credit Reporting Agency (e.g. Experian, Equifax, or TransUnion) using a statistical model after looking at information from your credit report. Your score is a fluid or changing number and is not part of your credit report; instead it is calculated each time someone requests the report.

Why are credit scores used?

Credit Scores help lenders assess your credit risk as compared with other individuals. It is an effort by the Credit Reporting Agency to provide a tool to help the lender evaluate risk and avoid subjectivity. Your score is supposed to reflect the likelihood that you will repay your debt.

What impacts my score?

In general, your score is affected by items in your credit report, such as the number and severity of late payments, the type, number and age of accounts, your total debt, and recent inquiries.

How do you improve your score?

Take control of your credit. Most importantly, pay your bills on time. In addition, establish credit history to show future lenders that you can be trusted to repay your debts. If you have no credit history, a lender will see the lack of history as a negative and will be reluctant to lend money; on the other hand, if you can show how you’ve repayed people over 10 years, you will be better off. Finally, don’t take on too much debt. Your debt to income ratio (how much debt you have compared to how much you make) reflects you ability to manage your lifestyle and demonstrates whether or not you are stretched too far with debt.