What Is a Credit Score?

Importance and Significance of a Credit Score

We all use credit in our lives. Credit is used in day to day activities like while buying goods on credit from your nearby retail store, or in business activities i.e. when a dealer buys goods from manufacturers on credit. Using a credit card is also like making use of credit. Your creditors, suppliers and credit card companies all make use of your credit score to evaluate your financial track record. Your credit score serves as an analytical tool to help the lender evaluate your creditworthiness.

Your credit score is a numeric representation of your credibility to address your outstanding financial obligations. Historically, people used to take their own lending and borrowing decisions; today most of the lending decisions are automated hence the credit scores generated by the credit reporting bureaus, are used as a means to judge your creditworthiness.

Uses of Your Credit Score:

Lenders and creditors use your credit score to predict how likely you are to make your outstanding payments on time. Banks uses the credit score to evaluate your potential to qualify for a loan, thus credit scores can authorize you access to funds through the implementation of a well built and trusted system.

The use of your credit score is not restricted to banks and credit card companies only. Various organizations and parties like your employer, government, insurance companies and cell phone companies evaluate your character, conduct and financial standing on the basis of your credit scores. Various other techniques, like the data mining technique, are similar to the credit score and credit reporting approach.

Why is Your Credit Score Important?

Your credit score is built out of your credit report. Your credit report contains details on how you have been paying your credit card bills and what your outstanding credit ratio is. This score affects your ability to raise instant money from the market. The interest rate which you secure on your loans is also a factor of your credit score. Thus, if you have a good credit score, you can get approval for paying a lower interest rate on new credit facility.

Problems You May Face If You Do Not Have a Good Credit Score:

• Your application to rent an apartment might be turned down.
• You may have to pay a higher deposit when renting an apartment, setting up a telephone service, or connecting electricity to your residence.
• You may face problems in getting employment, as most employers take a look at credit history of the likely candidate.