About Credit Scores

Your Ability to Repay a Debt

Your credit score is a representation of the likelihood of your ability to repay a debt.  Financial institutions, credit card companies, cell phone companies, and possibly even future employers use this number to determine if you represent yourself as a creditworthy applicant.

Your ability to borrow money is not determined by how you look, dress, or even what kind of car you drive. You may walk into a dealership to purchase a new vehicle in your Sunday best outfit and driving a beautiful car. Still, if you have a low credit score, the clothes you are wearing and the car you drove have ZERO impact on obtaining a loan to purchase a vehicle. The same goes if you drive to a dealership in a beat-up old car, dressed like you have been working in the yard all day, but you have a very high credit score, you will be approved for a loan to purchase a new vehicle.

Your ability to obtain new credit is based only on your credit score.

Understanding the things that raise or lower your credit score can assist you in reaching your financial goals.  Let’s dig in and learn about what is a good credit score is and how your credit score determined.  Most importantly, how do you raise and maintain your credit score?

What Is a Credit Score?

A credit score is sometimes referred to as a FICO score, a type of risk measurement created by Fair Isaac Corporation.

Another system measuring your credit score is VantageScore, a credit scoring system developed in 2006 by the three major credit rating agencies; Equifax, TransUnion, and Experian.  VantageScore is slightly different than FICO and utilizes a weighted average of the consumer’s available credit, recent credit, payment history, credit utilization, depth of credit, and credit balances with additional weight on payment history and credit utilization. The VantageScore credit score ranges are the same as FICO, 300-850. Those two scoring systems have slight differences. Consumers do not have a choice as to which scoring system a lender uses.

Regardless of the method to determine the score, credit score numbers will be between 300 – 850 and that number is designed to tell lenders how much risk is involved when lending to a specific individual.

Less Risk

Higher credit score numbers have less risk and the borrower is more likely to repay the debt as promised.

Higher Risk

Lower credit score numbers indicate the borrower is a high-risk applicant and the chances of they will repay the debt as promised are less likely.