What Is A Credit Score And How It Effects You …

What is a credit score, and why should I care? You've likely heard about credit scores, but how is that number calculated? Well, the "real" formula is apparently top secret, but basically the score is determined by your credit-to-debt ratio (credit available on credit cards vs. the
balance owed), your payment history on both secured and unsecured loans, your banking history, your employment history, and perhaps a variety of other factors.

A credit score is a three-digit number, but it is a three-digit number that can have a lot of impact on consumers. Banks and mortgage companies rely heavily on a consumer's credit score to determine whether a loan will be made and if it is made, at what interest rate. A low credit score or even no credit score can be the basis for a loan being denied.

Basically, a credit score is a digital analysis of each consumer's credit history. Rather than lenders having to wade through pages of information, they can simply look at a credit score and make an instant determination about an individual's credit worthiness.

Maintaining a good credit score should be a goal for every consumer. A low credit score can mean that you either won't get a loan at all or that you will be paying the highest interest rate (subprime) around. Late payments, maxed-out credit cards, and bankruptcies will subtract from a credit score. Extenuating circumstances like accidents, injuries, job loss, etc. are not factored into the equation.

On the other hand, a sterling payment history and prudent use of available credit add points to the credit score. It appears that a good payment history and a low credit-to-debt ratio are the two main factors in determining a credit score.

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