Credit Score explained

Most people have heard or read the words credit score at least once. However, many people do not have experience with financial terms and concepts, and for them this term may still be a mystery. In case you are asking yourself where you credit score comes from, here is a short article to bring some light on this term.

What is the credit score?

Your credit score is, basically, a number. This number is calculated based on several factors, each one of them indicating an increase or decrease on your ability to pay up debts, such as loans or mortgages. The value of your credit score is in the range from 300 to 900.

Are credit score and credit report the same thing?

No. A credit report is a comprehensive listing of all your credit history. It includes all your accounts, both open and closed. It also lists your personal information, legal data such as information about any pending trial, tax liens or judgment you may have, and information about who has required access to your file to check your credit history. As said above, your credit score is a number, which of course is the result of all the events stated in your credit report.

Why should I care about my credit score?

Well, simply put, your credit score defines if you are able to purchase things or open accounts. Therefore, this number determines how much the creditors will trust you. If you have a high credit score, then they will trust you more, offering better deals, lower interest rates and more convenient payments. If, on the other hand, your credit score is low, then they will be more doubtful of your ability to make payments, which may result in higher interest rates and lower amounts of money lent; and if your score is extremely low they may just refuse to lend you any money or let you buy things.

What factors have influence on my credit score?

Each one of the Nationwide Credit Agencies (TransUnion, Equifax and Experian) has its own formula for calculating your credit score. However, the information they use for these calculations is the same for all of them.

Paying your debts in time, keeping a good balance on your accounts (no more than 20-25 percent of your credit limit) and a history of timely and full payments will all affect your credit score in a positive way. Maintaining the same job for a long time also helps increase your credit score.

In contrast, missing your payments, reaching your credit limit, long periods between jobs, legal matters like tax liens or trials, foreclosures and bankruptcy are guaranteed to lower your credit score.

How can I find out my credit score?

Each one of the three credit bureaus offer your credit score for a fee, and sometimes information about your credit score is included for free when you buy another one of their products. You can take a look to the available credit report and score offers on our Credit Reports Monitoring Services page.

Jack Bronstein
Credit Report Watcher Team