What Are Credit Scores?

Photo by patricia serna on Unsplash

If you could rate yourself between 0 and 800, what number what you be?

A credit score is a three-digit number, typically between 300 and 850, that represents your credit risk (or the likelihood you pay bills timely). It's calculated based on your financial information, including:

1. History of payment

2. Amount of debt

3. Age of credit

4. Types of credit

5. Inquiries for credit

Your credit score represents a snapshot of your credit risk profile and credit behaviors.

A higher credit score can boost your chance of credit approval. On the other hand, a lower credit score may lead to difficulty in getting approval for credit. Lenders look at your credit score to evaluate credit requests, such as:

• applying for financial loans,

• opening a new billing account, or

• signing an apartment lease.

A low credit score typically indicates high credit risk and may result in:

• higher borrowing costs (interest rate) if approved, or

• denial of your credit request

Good credit management increases your credit score and can even decrease your costs of borrowing. This puts more money in your wallet to save and invest in your future.

Have you checked your credit score recently? If not, a quick internet search will put you on the path to financial freedom.