Credit scores are used by lenders, including banks providing mortgage loans, credit card companies, and even car dealerships financing auto purchases, to make decisions about whether or not to offer your credit (such as a credit card or loan) and what the terms of the offer (such as the interest rate or down payment) will be.
What Is Your Credit Score Meaning?
Most of us realize how important your credit score is when it comes to buying a home, car or getting some kind of loan for anything.
But when you say the word “credit score”, what does it actually signify? A credit score is compiled from your credit report and grants a lender the power to decide whether they should give you a loan for their product or service.
First of all, it’s worth pointing out that credit score and credit report are not the same thing, although they are connected.
Your credit score is a number defined by the credit bureaus and it is designed to indicate to the lender the risk associated with taking you on as a debtor.
In contrast, a credit report is the summary of your credit history and credit rating. Most financial institutions and even many employers will determine your eligibility by the report and score combined.
What you may already know about your credit score meaning is that your credit score is called your FICO score. The name was derived from the company (Fair Isaac) that designed the software which enables your score to be calculated.
The number is calculated by taking into account your credit history and it is used regularly by many institutions.
What Your Credit Report Contains?
Your credit report lists all of your credit requests, any bankruptcy, your payment history, how much credit you use and how many accounts you currently have open. What the credit report does not contain is your FICO (credit score).
It’s important to keep in mind that you can only request your credit report one time each year to check if there have been any changes to your credit history.
It is recommended that you do check your report in case there are errors or misunderstandings that need to be taken care of.
If you want to get a copy of your credit report, you can request it at Trans Union, Equifax, and Experian and it will be free of charge. You can get your FICO score online or from a variety of other institutions.
FICO scores may fall between the range of 300 and 850. The higher your score, the more likely you will be able to get loans for those expenses that you need to pay off gradually like cars, homes or other expensive items.
And, the higher your FICO score, the lower your interest rate will be on the loan. In short, you are very much rewarded for establishing and maintaining good credit.
If your credit score is low, you are more likely to be declined for loans and, if you are accepted, the interest rate you pay will be higher.
Your score also determines how much of a loan you can get. The higher your score, the more loan you qualify for.
It’s a good idea to keep these basics about the credit score meaning in mind.
While being late on a bill every once in a while will not affect your score dramatically, especially if you have a fairly long credit history, constant delays, missed payments, too much debt or general instability can take their toll on your credit score.