One definition: A numerical assessment assigned to the customer by credit bureaus that represents a measurement of the customer's overall credit rating. The scores are weighted and range from approximately 365 to 840. Low scores reflect a "high risk", while higher scores reflect a "lower risk". Each of the 3 credit bureaus has its own credit score system.

    Another definition: A statistical method of assessing an applicant's credit worthiness. An applicant's credit card history, amount of outstanding debt, the type of credit use,; negative information such as bankruptcies or late payments, collection accounts and judgments, too little credit history, and too many credit lines with the maximum amount borrowed are all included in credit-scoring models to determine the credit score.

The History of Credit Scores

    First devised by Fair Issac Corporation in the 1980's, a credit score is determined by a mathematical model influenced by many factors, including payment history, amounts owed, accounts in use and new accounts opened. Today, the Fair Isaac system - known as FICOž - is the scoring model most widely used by lenders.

Why Credit Scores Matter

    Your credit score matters because it is one of the chief determining factors of how much credit a lender will grant you and how much interest you will pay for that credit. Your credit score is a number from 300 to 850, with a higher score usually indicating a lower credit risk.

In the end, the lender still has the final say about whether or not to give you credit and how much they will charge for it. The lender may take into consideration any special reasons for your past credit problems. In addition, the lender will look at more than just your credit score - including your equity investment in a home, job history, income, savings, and the type of mortgage loan you want -- before making a final decision.

How to Manage Your Score

    The most important thing you can do to manage your credit score is to check your credit report regularly. If you haven't obtained a copy of your credit report recently you can easily get one online. Most credit bureaus offer 3-in-1 Credit Reports, which contain the reports from all 3 credit reporting agencies.

    If you find any errors, mistakes, or inaccuracies on your report correct them. They can damage your credit score. For more information visit our How to Fix Bad Credit page.

    After you get your credit reports, you should also obtain your current FICOž Credit Score so you know where you stand. Again a low score means that lender will almost always limit your credit line and charge your more in interest.

    It is always a good idea to keep your total account balances as low as possible for things like credit cards and other loans. High outstanding debt can negatively affect your score, as you have a greater chance of missing payments.

    Pay your bills on time. If you have to miss a payment, be sure to pay up the next month. Accounts more than 60 days past due will be indicated on your credit report. Missed payments or late payment can often show up on your credit report and negatively impact your credit score.

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