Credit score numbers represent the creditworthiness of a person in numerical terms. These numerical expressions, which point out whether a person is capable or not of paying off his debts, are based on the statistical analysis of his credit files.

Credit bureaus serve as a key source of information on credit reports.

Importance of Credit Score

Credit score numbers are very useful and important to money lenders like banks and credit card companies. When you apply for a credit or a loan, they use credit score numbers to evaluate the degree of risk involved in lending money to an individual person or a particular company.

A credit score generally ranges from 0 to 850. Credit score is used to verify if the consumer is eligible for a loan. If he qualifies, then the credit score can also be used for determining the rate of interest and the credit limit. Thus, credit scoring before issuing a loan or granting credit is very important.

Credit score numbers are produced with the help of a computer model which has been created by FICO (Fair, Isaac & Co.). The Financial Services Authority regulates credit scoring.

Besides banks and credit card companies, other organizations like government departments, auto loan lenders, home equity, cellular phone companies and finance companies also make use of credit scores for their benefit.

However, a great credit score indicates that you use a lot of credit. Although, it does indicate that you make your payments on time and you are a good credit risk, it also means that you owe money and are in debt. The slick commercials never tend to point this out.

Credit Scoring Methods

In many countries, academic research on credit score numbers is conducted on a wide scale. A technique known as logistic regression is used in order to establish the creditworthiness of a consumer.

Logistic regression is helpful in predicting binary outcome. Bad debt or no bad debts are two instances of binary outcome. This technique also helps to predict the amount of bad debt.

Your credit history which is summarized on the credit report comprises of the debts repaid by you. This information is used by the lenders to evaluate and determine whether you are a good credit risk.

The responsibility for compiling this essential information about your past payments, current balance, types of loans or credit undertaken, unused credit and other necessary credit information lies with national credit bureaus like Equifax, Experian and TransUnion.

Factors Affecting Your Credit Score

While analyzing your credit score numbers, lenders also take into consideration the different types of accounts and your overall financial state of affairs.

Information on your credit score and credit report provide the main resource that most lenders review in making their credit decision.

A credit score is greatly influenced by factors such as the amount of debt you have taken; prompt repayment of these debts, how many credit accounts you have, their current balance and for how long these credit accounts have been operational.

As you can see, there is a great amount of detail, time and attention that is paid to your credit score. However, you can avoid needing to be concerned about it at all if you simply make the important decision to live your life debt free. It’s something to think about!

» Credit Score Rating Scale - FICO vs. Vantage
This is more than one credit score rating scale. FICO is certainly the best known, but Vantage is another scale that is utilized by more lenders today.

» Excellent Credit Score - What A Score Says About You
An excellent credit score is based on many factors. The more you know about these areas of your financial life, the more able you are to manage your credit in a positive way.

» Repairing Your Credit - Without Becoming Stressed-Out
Repairing your credit information is indeed a hassle. However, if you know how to go about it, your frustration can be minimized.

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