It is based on information within an individual’s credit report.
Like a test score, the higher your credit score, the better your credit.
A good credit score shows that you have a high probability of repaying loans on time. Therefore, a good credit score will help you take out loans more easily and even get better interest rates.
A credit score is a three-digit number between 300 and 850. It’s basically a snapshot of a person’s financial standing at a particular point in time.
The mathematical formula behind an individual’s credit score can get pretty complicated (and seems to vary a bit depending on who you talk to) but we can safely say here that a credit score includes:
- Your payment track record.
- How long you’ve used credit.
- How often you’ve applied for new credit and whether you’ve taken on new debt.
- The types of credit you currently use, such as credit cards, retail accounts, installment loans, finance company accounts and mortgages.
As we’ll see in the very next Curtis Money post, you can get a free annual credit card report but a free credit score is a little more difficult to come by.