In case you do not have an idea what a credit score is, a credit score is a statistical summary of your credit report. It sounds so simple but there is more to credit scores than statistics. Creditors and lenders look at your credit score to determine your creditworthiness.
You would know how great your science project is based on the score you got, right? Well, it turns out that credit reports work just like that. In school, the grades are generally from A to F. Credit scores, on the other hand, range from 300 to 850. If A is the highest, academic-wise, 850 is the top score when it comes to credit. The higher the credit score is the better. Creditors and lenders are more than willing to arrange loans with lower interest rates for people who have high credit scores. It only follows that if the credit score is lower than what is deemed satisfactory, higher interest rates are to be expected. Also, there is also a good chance for denial.
Seeing how vital the credit score can be in your finances, you should be aware what credit scores are made of. Here is the breakdown of your credit score:
Payment History – 35%
Debt Level – 30%
Length of Credit History – 15%
Inquiries – 10%
Mix of Credit – 10%
Keep in mind that there are many adaptations of credit scores. The one we mentioned above is the FICO score, the most widely-used version. The FICO score, designed by the Fair Isaac Company, is favored by a significant number of creditors and lenders.