A credit score, put simply, is a number that decides how creditworthy and dependable a person will be when it comes to paying their bills and paying back money an individual has borrowed. This score is a simple 3-digit number that can summarize up your whole credit report to creditors and lenders, basically grounding you down into a “lend to” or “do not lend to” category. It’s an important number, as it is one factor that lets you take out loans for computers, houses, cars, is a main benefactor in the type of insurance rates you get, and can basically say whether or not you are reliable enough to have more credit accounts opened.

Credit scores are defined by what is found on your credit report. It is usually the final result of what your credit report turns up. While most creditors and lenders will examine your credit report before considering whether you are applicable to borrow more, a credit score can be regarded as their first impression into how you are standing credit-wise.

The three digit numbering system used to display your credit score runs from 300 to 850, 850 being the highest credit score you can receive. The higher the credit score, the better. A higher credit score, one running from 700 to 850, shows lenders that your credit habits and behaviors have been much better than those with low scores.

A person with a low credit score may have a hard time opening new accounts of credit as they may have had troubles paying their credit back in the past. This can also make it harder to achieve low insurance rates, as insurers have figured those with lower credit scores are more likely to file claims against their insurance. Most Americans run scores between 600 and 700.

Origins of the Credit Score

This score is based on the FICO, Fair Isaac and Company, system. Fair Isaac and Company created this score in order to help banks, lenders, and other creditors determine just how trustworthy you are. As more bureaus opened to help report credit, such as Experian, Equifax and TransUnion, FICO worked with them to develop their own systems. All three of these major credit bureaus use the FICO system as a base but have tweaked it to make it their own. If you ask for a credit report and score from all 3 of them, you will notice that not all of your credit scores will be equal (however they should be similar, unless they do not carry the same credit information about you).

Determining Credit Score

When determining your credit score, these credit bureaus will examine several aspects of you to find your results. One of the number one factors that help calculates your credit score is how much of your available credit you are using. If one of your credit companies doesn’t report your credit limit, you will be listed as using all your available credit on that account, whether or not you actually are, causing a steep drop on your credit score. Other major factors determining what your credit score will be include how your previous payment behaviors have been, how much credit debt you have and how long you’ve been in credit debt. They also examine how many credit lenders have looked into your file (they generally disregard this when you are looking for an auto loan or mortgage within short periods of time), how much credit you have in comparison to how much you are using, as well as the type of credit you are signed up with.

If you would like to examine your credit score, there are several websites set up to do this. On top of ordering your credit score from the three major credit bureaus – Experian, Equifax and TransUnion – you can also find information on the process to get all three reports at once with FICO. Getting informed on your credit score is a great way to know how you are standing credit-wise, and can get you on the right path to a better credit score.