What is a Credit Score?
What is a Credit Score?
A Credit Score is like a report card for your finances. It's a three-digit number that tells lenders, like us, how responsible you are with money. If you pay bills on time, don't borrow too much, and don't have a lot of debts, you'll probably have a higher score. If you've had some troubles, like late payments or lots of debt, your score might be lower. The higher your score, usually between 300 and 850, the better chance you have of getting approved for things like loans, credit cards, or apartments, and at better rates. It's important to try and keep your credit score up because it affects your ability to borrow money.[1]
3 things to know about Credit Scores
1. Different Companies, Different Scores: There are three main companies—Experian, TransUnion, and Equifax—that calculate credit scores. They might not all have the exact same information about your finances, so your score could be a little different from each one.
2. Not Just Loans and Credit Cards: While your credit score certainly affects your ability to get a loan or a credit card, it can influence other things too. Landlords might check your score before letting you rent an apartment, and some employers check credit scores during the hiring process.
3. You Can Improve It: If your score isn't as high as you'd like, don't despair! You can raise your credit score over time by paying your bills on time, reducing the amount you owe, and opening new credit accounts only as needed. Plus, checking your score regularly can help you catch any errors and understand how your financial behavior affects your score. [2]
When were credit scores created?
Credit scores were introduced in the 1950s, but the most commonly used version, the FICO score, was first developed in 1989. Fair Isaac Corporation (FICO) created these scores to help lenders predict a borrower's credit risk more accurately. Before credit scores, lenders would manually review a borrower's credit report to determine whether they were likely to pay back a loan. The FICO score standardized this process and made it much quicker and easier for lenders to make decisions about creditworthiness. The use of credit scores has helped more people get access to credit and allowed lenders to more accurately assess risk. [3]
Citations and links
[1] [2] https://www.myfico.com/credit-education/whats-in-your-credit-score
[3] https://www.fico.com/en/30-years
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