A credit score is a rating used by lenders to: determine your credit worthiness (the likelihood that you’ll fail to pay as agreed during the next 2 to 3 years), how much credit to lend and at what rate to lend it. Typically, credit scores range from 300 to 850.  The higher the score, the less risk you represent.

Your credit score is only one factor that a lender will use in making these decisions.  Lenders may try to get a “bigger picture” by looking at your credit report, the information that you provided on your credit application, and even possibly their current relationship with you.  Each lender will have its own guidelines on granting credit, so it never hurts to ask about their policies!

Because credit scores fluctuate as the items in your credit report change, they are generated only when a lender requests your credit report and are not stored as part of your credit history.  (For example, payments or new accounts could cause your score to change.) Your score from two months ago will not be the same score that you would receive today, in most cases.

How scores are calculated

Lenders create models by reviewing a set of consumers, examining their credit profiles and identifying common variables.  Using this information, they build statistical models that assign weights to each variable.  Lenders then combine these weights to create a credit score.

Thousands of credit-scoring models are in use in the credit industry.  Different models will consider different variables for different types of credit.  For example, an auto loan would more closely consider payment statistics related to auto loans.

Generally, positive credit characteristics will make your score higher and help you to qualify for loans and better interest rates.  Negative characteristics will make your score lower and interfere with your ability to get the best loans/rates.

Your credit score is one of the most important factors used by lenders to determine whether to grant you credit, how much credit to grant you, and at what interest rate to grant it.  For this reason, it is important to know that your score truly represents your credit standing.  Generally, the higher your score, the better off you are.

Since your credit score is a reflection of your past credit history, there is no magical way to improve it immediately; however there ARE steps you can take to raise your score.

US Residents may obtain credit scores through the major credit bureaus…