What is a credit score and how does it affect me?

You may not know what it is or even that you have one, but, your credit score has been affecting your life for years. It is used by creditors when you apply for credit, loans or charge accounts. A computer formula producing a number which then becomes your credit score. It is intended to be a snapshot, or summary, of your credit history. A low score can mean you don't get a credit card or loan, or that if you do, you will pay a higher interest rate.

It is not exactly known how a credit score is determined. However, FICO (the model most often used created by Fair, Isaac & Co.) does consider 5 main factors. Here they are along with their approximate weighting percentage: payment history (35%), outstanding debt (30%), length of your credit history (15%), recent inquiries on your report (10%), types of credit in use (10%).

An average credit score is around 700, with scores ranging from 400 to 900. Industry experience shows a direct correlation between your score and your chance of defaulting on your credit obligations. The higher your score the lower the risk of default, therefor, a low score has higher the rate of defaulting.

About The Author:

Linda Dziwenka is a successful author and regular contributor to http://www.ultimate-credit-report.com. She has a vast knowledge of how to obtain and use your credit, credit report, credit bureau and credit counseling to your advantage.