(MoneyHippo.com) – Your credit score affects many aspects of your financial life, and the higher the number – the better. Most people know how important it is, but not many know what their credit score actually means. Banks and other creditors use a person’s credit score to determine how much risk they would take if they were to loan that person money. So, what goes into calculating your credit score number?
First, you don’t have one credit score – you have three. Experian, TransUnion, and Equifax are the credit bureaus responsible for calculating your numbers. They use your credit report to determine your personal score, which fluctuates throughout your financial lifetime. The bureaus look at your credit report, including on-time payments, late payments, open credit, types of credit, bankruptcies, and anything else related to your finances.
Giving weight to each item on your credit report, they translate the activity into a number known as your credit score. That number can vary between the three agencies because of differences in how each assigns importance to different activities and how they calculate the score. Creditors look at all three to determine the risk level they might incur by loaning you money.
Credit scores generally range from 300 to 850 and will likely determine the interest rate lenders offer in addition to terms and whether or not they will even loan you money. The higher your score, the better your chances of securing a loan, renting a property, or getting the job you really want.
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