What Your Credit Score Says About You

Credit scores are used by lenders and creditors to decide whether or not to extend credit to you and at what terms.  The score is a three digit number that indicates your likelihood to pay your bills on time.  The credit score is maintained and administered by the three credit bureaus – Equifax, Experian, and TransUnion.  These bureaus use the credit information reported to them by your creditors and lenders to calculate your credit score.

When your credit score is calculated, several factors are considered.  The factor that has the most influence on your credit score is your payment history, how you have paid your bills in the past.  Other factors that influence your credit score are your debt level, length of credit history, recent credit applications, and types of credit.  A low debt level, longer credit history, fewer credit applications, and a mix of different types of credit are positive influences that will increase your credit score.

Your credit score might fall anywhere between 300 and 850, with 850 being the highest credit score you can achieve.  Higher credit scores are viewed favorably by creditors and lenders.  A high credit score means that you have demonstrated positive credit behavior.  You’ve paid your bills on time, kept your balances low, maintained credit for a longer period of time, and kept credit applications to a minimum. 

A consumer with a high credit score will find it easier to be approved for new loans and credit applications.  Not only that, interest rates and security deposits will be lower these consumers.

On the other end of the spectrum are those consumers with lower credit scores.  A credit score can be lowered by adverse actions such as late payments on credit cards and loans, maxing out your credit cards, having a short credit history, and numerous credit applications.  While it is possible for someone with a low credit score to obtain new credit, it is usually at a higher cost.  Lenders and creditors impose higher interest rates for applicants that have a lower credit score.  Some borrowers might be denied for additional loans or credit cards because of the credit score.

Keep in mind that your credit score is an indicator of your past financial behavior.  A low credit score does not mean that you cannot or will not pay your bills; neither does a high credit score mean that you can or will pay your bills.  The credit score is simply a number that indicates what you have done in the past.  Since lenders can’t merely take your word for it on whether you will pay a bill, make positive financial decisions so your credit score will reflect your habits.

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