A credit score is a number lenders use to help them decide how likely it is that they will be repaid on time if they give a person a loan or a credit card. Your personal credit score is built on your credit history.
For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750. A decent credit score is essential for your financial well-being because the higher it is, the less of a credit risk you are. There are primarily two types of credit scores, generic scores, and custom scores:
Generic credit scores are used by many types of lenders and businesses to determine general credit risk. You can access your generic score as one score using the same formula across all three credit reporting agencies.
Custom credit scores are developed for use by individual lenders. They rely on credit reports and other information, such as account history, from the lender’s own portfolio. They are unique to the specific business, or they may be used by specific types of lenders, such as credit unions. Custom credit scores can apply to specific types of lending, such as mortgage lending or auto lending.
Before credit scores, lenders physically look over each applicant’s credit report to determine whether to grant credit.
Today, credit scores help lenders assess risk more fairly.
- Credit scores are consistent and objective
- They reflect only your likelihood to repay debt responsibly based on your past credit history and current credit status
Another common question is whether checking your own credit report or score can hurt it. The answer is no. Checking your own credit scores doesn’t lower them. Checking your own credit report creates a special kind of inquiry that isn’t considered in credit score calculations.
