What is a Credit Score?

In the simplest terms a credit score is a number which represents your credit trustworthiness, a trust rank, a measurement of risk factor assigned to you in the finance world. It represents the likelihood that you the consumer will pay your bills and on time. Credit score is designed in order to help credit lending institutions such as banks, credit unions, and credit card companies make better lending decisions by evaluating potential risk posed by lending money to a consumer and to avoid losses due to bad debt. Whether a person, or a corporation, an entity’s credit score, is a number, derived from ones credit history and its current financial situation, describing consumers ability to pay off credit.

Wikipedia describes credit score as a “numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus.”

It’s worth noting that credit scoring is not limited to banks. Other organizations, such as mobile phone companies, employers, landlords, insurance companies, car dealerships, government departments, and virtually anyone exposed by making loans, employ some sort of credit scoring techniques whether propitiatory or ones provided by credit bureaus.

Good Credit Score vs Bad Credit Score
Those with a good credit score like any relationship where trust is not broken can count on certain rewards, like more favorable financing arrangement, lower interest rate for home mortgage or car loans, higher credit card limits. Little luxuries and conveniences like that which help in getting ahead and making financial decisions, a little smoother, while having big impact later on. Bad credit score on the other hand means tighter circle of options, and inevitably higher interest rates. It is easier to slip from good credit to Bad credit rating than building back credit score trust, that is why it is essential to monitor your credit score situation and ensure you maintain in good standing.