Credit Score
The credit score is an estimate of your credit worthiness and represents your likelihood of paying off debts.
Banks, credit card and insurance companies use your credit score to determine many factors such as your:
- Credit card limit
- Qualification for a mortgage of a property owned by you
- Ability to pay timely rent every month
- Interest rate
- Qualification for increased credit line
- Insurance rates
In short, credit score is a three digit number based on statistical analysis of information contained in your credit report. The information is extracted from many sources such as your bill payment history, the number and type of accounts you have, late payments, collections, outstanding debt and the age of your accounts. The credit report is usually formulated by three major American credit bureaus: Equifax, Experian and TransUnion.
The credit score is also known as FICO score. Fair Isaac Corporation (FICO) has developed the mathematical formula to determine credit scores.
Credit scores typically fall in the range of 300 to 850. The accumulation of the most of the credit scores are within the 600 to 700 bracket. The higher the credit score, the likelier your chance of obtaining credit at better rates at a lower cost. For most lenders, credit score above 700 indicates low risk, implying good financial health and responsibility. Credit score under 600 indicates high risk, resulting in higher interest rate or rejection of your credit application.
