What is a credit score and how does it work
You have heard a lot about the importance of having a good credit score and may have even heard people talk about being denied a car loan because their credit wasn't good enough. What does it all mean?
The number is 3 digits. It is calculated based on a number of factors that are pulled from your credit report. Things like payment history on past loans, the number of open accounts you have, any bills that have been sent to collections or loans that are in default will impact your credit score. Every lender will have their own standards of lending. Some may feel a score of 550 is sufficient to issue credit, while others my want scores as high as 700.
There are 3 major credit bureaus that calculate your score. They tend to vary in their calculations. Many lenders will take an average of the 3 scores to determine what your total credit score is. The bureaus tend to be very close and you won't see a major difference in the final score. It is important you pay close attention to the score and your credit reports. The number will change when you open new credit, apply for credit or hit significant milestones on an account, like having it open for one year without any late payments.
In order to get the best interest rates possible, it is crucial you have a healthy credit score. It takes time to build and very little to destroy. If your score is low, you may need to look into credit repair.