What Is A Credit Score?

Everyone has probably heard of a credit score.  Many people are not quite sure what it is and how it works.  Do you know how your credit score compares to others in the United States?

If you plan to apply for a loan, rent an apartment, apply for a job or even take out insurance It is important that you know the number for your credit score.  Your credit score will likely be checked for any of these occurrences and it can determine whether or not you get what you are seeking.

Credit scores run from 300 to 850.  You may think that by taking the average between 300 and 850 which is 575 you have a credit score that is average for people in the US.  Not true.  The average credit score in the United States is around 690.

There are three credit rating bureaus which are Experian, TransUnion and Equifax.  If you look at the credit score from all three agencies you will probably find that there is some variance in the number from each agency.  Credit scores are based on four factors. They are based on your payment history, the amount of your debt compared to your credit limits, the length of your credit history, and the amount of new credit inquiries for you.  When you check your own credit score it does not count as a credit inquiry.

Before deciding whether to grant you credit most lenders will look at your credit score.  Since each lender works independently there is not an exact number to know when you will be offered credit at the best rate or when you will be charged a higher rate or asked to provide collateral.  When looking for a loan it pays to shop around to try and get the best deal.

Most people will not have a perfect credit score of 850.  If your credit score is 720 or higher you are considered to be in the top level of credit scores.  People with scores above 720 are offered credit with the best terms.  Most lenders will extend credit when a credit score is 680 or above.  You probably will not get the best rate if your score is closer to 680, but you should be able to obtain credit.  If you have a credit score below 630 you will probably find it hard to obtain credit and you will have to pay a high interest rate.

If you are thinking about purchasing a car, applying for a mortgage, leasing a new apartment, getting a new job or obtaining insurance you need to work on getting your credit score up to a decent number.  When thinking about the range for credit scores do not think of the lowest number being 300.  Instead use the number for the average credit score in the United States of 690 as the lowest number you should consider.  Work to get your number up to at least that figure and try to raise your credit score even higher.  The higher your score the better lenders will see you as a credit risk and the better your rates will be.