What Is Credit Score

A credit score is a number that shows you how high your credit risk is. It is the quantification of your creditworthiness evaluation.

The score determines the lender’s decision, whether to offer credit to you or not? And at what level. You will quickly get a loan with a competitive interest if you score well. A high score indicates you can fulfill payment obligations on time.

Scores range from 300-850. The higher the credit score, the lower your risk of default. And your creditworthiness is good if you have a score of 700 or more.

Factors to consider in evaluating creditworthiness are:

• Credit history, including concerning the amount and timeliness of previous payments
• Total debt, relative to the credit limit.
• Your old credit track record, whether you are a new applicant or not
• Number of new credit applications
• Current number and type of credit account

You might ask, does salary affect your score. The answer is no. But, that determines your credit capacity. Lenders use it to determine your credit limit. If income is high and stable, you can expect a higher credit ceiling.

You must remember, credit scores are ordinal ratings. It doesn’t tell you how many times your risk is compared to others.

Say, you have a score of 800, and your friend has a score of 400. That means your friend has a higher risk of default than you. But, that doesn’t say you have the chance of defaulting half of your friends.