What is Credit Score?
What Is a Credit Score?
A credit score is a number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
KEY TAKEAWAYS
A credit score plays a key role in a lender's decision to offer credit.
The FICO scoring system is used by many financial institutions.
Factors considered in credit scoring include repayment history, types of loans, length of credit history, and an individual's total debt.
One metric used in calculating a credit score is credit utilization or the percentage of available credit currently being used.
It is not always advisable to close a credit account that is not being used since doing so can lower a person's credit score.
A credit score can significantly affect your financial life. It plays a key role in a lender's decision to offer you credit. People with credit scores below 640, for example, are generally considered to be subprime borrowers. Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage in order to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.
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