Creditors use your credit scores to determine your risk as a borrower. Your credit risk tells potential creditors whether there's a good chance you'll pay off your credit card debt or make on-time payments on a new car loan.
Better credit scores will also allow you to pay less for credit and open up more credit opportunities.
Creditors make many calculations based on your credit scores and information on your credit report. Your financial history is actually public record, and your financial information -- including payment history -- is located and condensed by three major credit bureaus: Equifax, TransUnion, and Experian.
A high score indicates you are a great candidate for paying back loans on time, while a low score means you do not have a history of responsibly paying back debts.
Credit Score Ranges
Excellent Credit: 730 - 850
Good Credit: 700 - 730
Average Credit: 650 - 700
Fair Credit: 600 - 650
Poor Credit: Less Than 600
The data that the three credit bureaus accumulate becomes your credit report and it used to calculate your credit scores. It's important to realize that even a single piece of information can change your score and may mean the difference between getting approved for a credit card and getting rejected.
Your credit report includes identifying information (including your name, current/former addresses and employer), along with your credit and loan history, inquiries into your credit, collection records and public records, such as a tax lien or bankruptcy filing.
It is possible to end up with different credit scores from each bureau because they may be looking at slightly different information when determining your score. For that reason, we recommend checking both your score and the details of your credit reports with all 3 bureaus to confirm accuracy. It will also help you figure out what type of offers you are entitled to when seeking new lines of credit.
Credit Shout is a community of personal finance experts dedicated to helping you save money and make smart financial decisions. Learn how to master your credit card rewards, improve your credit score and start eliminating your debt.