Credit Scores, Part 1: What is a Credit Score?

When it comes to your finances, credit scores are some of the most important numbers you have. Good credit scores help you get the best terms on your mortgage and auto loan, as well as competitive interest rates on new lines of credit. Low credit scores mean you pay more to use credit and face higher interest on your home and car. Really bad credit scores can even prevent you from renting apartments, getting a rental car and even securing a new job in some career fields.

If your credit card debt is out of control, there is a strong possibility this is affecting your credit scores. Late and missed credit card payments, as well as going over your credit limit, affect your credit scores. If you’re concerned about what debt is doing to your credit, call Consolidated Credit today. A trained credit counsellor can review your debts to help you get the total picture of your credit and finances. Call 1-888-287-8506 to speak with a credit counsellor now. You can also take the first step online with a Free Debt Analysis.

Is a Credit Score the Same as a Credit Report?

It can be a bit confusing when it comes to understanding the difference between a credit score and a credit report. Your credit report is an overview that covers the history of your credit use, as well as other details that might impact a lender or creditor’s decision to extend you a line of credit. A credit score is a numeric measure of your credit worthiness. Effectively, it lets lenders and creditors know how much of a risk you will be and how likely you are to repay a debt. The higher your credit scores, the less risk you present to potential lenders.

Why Do Consumers Have More than One Credit Score?

Lenders, creditors, financers, and even financial institutions of different kinds can have different credit scores for the same consumer, because they calculate risk in a different way. What makes you a high risk borrower for one kind of lender may not necessarily impact your credit worthiness with another kind of lender as much. As a result, you have multiple credit scores that creditors and lenders may use to determine if you are a good candidate for a new line of credit.

Each of the main credit bureaus (Equifax and TransUnion) not only maintains their own record of your credit report, they also have their own credit score calculation. As a result, most companies look at both scores to calculate your risk as a borrower. The calculations used to determine both of these credit scores are based on the same system—the FICO credit score calculation.

What is a FICO Credit Score?

A FICO credit score comes from Fair, Issac & Company—the first company to develop a standardized credit score calculation in 1956. This calculation results in what’s known as your FICO Credit Score. Once credit scoring really took off as a concept, the credit bureaus used the FICO credit score calculation to develop their own credit scoring systems. As a result (thankfully), the same factors that affect the credit score from one credit bureau will also affect the other. This provides a great benefit to you as a consumer when you need to rebuild credit.

Need More Information?

If you need more information about your credit scores, please continue reading with parts two and three, “How Are Credit Scores are Calculated?” and “Using Credit Scores to Your Advantage” We also have a full section dedicated to helping your Fix Your Credit Scores if you need to rebuild your credit following a period of financial hardship.

If you still have questions, or need to get debt under control before you fix your credit scores, please don’t hesitate to contact us at 1-888-287-8506 to speak with a trained credit counsellor about your situation. You can also get started online with a request for a Free Debt Analysis.