What Is a Good Credit Score and Why Does It Matter?

Different credit bureaus and private companies prepare credit reports and scores that are widely used by financial institutions to measure someone’s credit worthiness. A good credit score automatically qualifies somebody for loans, lines of credit, lower interest rates, etc. while someone with bad credit score may have trouble obtaining the same benefits.

This can have a very serious effect on someone’s financial life. Apart from discrimination in the access to credit, people with a bad credit score are also discriminated against in renting a property and employment. This means that someone with a bad credit score can face difficulties in finding a place to rent. However, a bad credit score can be improved over time with more responsible financial behavior.

How Credit Scores Are Calculated
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There are quite a few credit bureaus that keep track of financial transactions and prepare their own credit scores. The most famous of them is FICO score credit report. 

It is named after the data analytics company FICO (Earlier, Fair Isaac Corp.) that prepares the financial credibility score for people and organizations in the US. It is one of the most popular credit scores and most lenders accept and ask for it before taking any lending decision. There are many factors that determine the credit score such as your debt payment history and the amount of credit used. 

A history of making regular and timely payment of your debt and keeping a larger portion of your credit card unused makes your score go up. 

While FICO does not reveal how it calculates someone’s credit score, it is believed that it gives different levels of importance to 5 chief credit indicators. Here is how FICO is believed to prepare your credit score:

  • Payment history: 35%
  • Credit owed: 30%
  • Credit history: 15%
  • Type of credits: 10%
  • New credit: 10%

While preparing credit scores, all of these factors are taken into account as per the weight assigned to them. No one or two factors but all of these factors are considered.

Apart from FICO scores, there are at least 3 more credit bureaus that prepare their own credit scores. They are TransUnion, Equifax, and Experian.

You are entitled to get a free credit score from all of these credit bureaus once a year. You can buy your credit report anytime by paying a fee. There is another way to get your free credit report. 

You can get an Experian or TransUnion credit report through a company that sells financial products, as they normally buy access to credit scores so that it can sell its products to individuals and businesses who have good scores. They allow you to do a credit check by submitting your details on their websites. So you can use these websites for a free credit check any time for free.

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By Admin