What Are Credit Scores And Credit?

Credit scores and credit are nothing but a way to gauge a person's creditworthiness. Finance or money is needed by every individual and company. People may borrow money from banks financial institutions, money lenders, etc.

Although the repayment mode is predetermined, many a times there may be a default in making the payment due to various reasons. Credit score is a 3 digit numerical figure that reflects your creditworthiness.

Normally, the range of the credit score lies between 300 and 800. The higher the credit score, the better is your creditworthiness. This credit score is determined by FICO. It is calculated based on the credit reports from 3 credit rating bureau, namely, Transunion, Equifax and Experian.

To your creditor, the credit score reflects the changes of recovering his money back. That is to say, a person with bad credit score is less likely to repay the loan and vice versa. All lending institutions, banks, employers, dealers and any one who is going in to a financial deal with you, will take a look at your credit score.

The credit score is thus very vital and needs to be maintained with caution. If the credit rating or credit score is bad, the person may have difficulty in getting loans or credit cards at a low rate of interest. He may have to pay interest at a higher rate. Credit scores thus prove as a screening process for the lending institutes and credit card companies as far as the borrowers are concerned. A trust is built when the borrower furnishes a clean and high credit score. It ensures the lender that the person would indeed pay back the loan amount in time.

Even when applying for jobs or getting loans in other countries, one can show the credit scores to gain an edge. The rules for credit rating however are different in different countries. The scoring or rating of credit was first initialized by banks. However, today many institutions and government alike use this method for screening a person's credit worthiness. Credit scores and credit help in gauging the probable risks that can be expected when lending money to a person.

This would help a lender in accessing the bad debt and how to make provision against the same. Credit score also helps a lender to decide the loan amount and duration of the repayment. Other factors like interest rates etc can also be decided.

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