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what is a credit score?

A credit score is a numeric representation of a person's credit performance used to predict whether an individual will make payments in the future.

The three major national credit bureaus provide credit scores when an inquiry is made into an individual's credit. A credit score is derived from information contained in that individual's credit history. Each time an inquiry is made on a person's credit file the credit score(s) will be different. This is because credit scores are "liquid," meaning they change as characteristics change on the personal credit file for a particular individual.

Changes to an individual's credit file occur when the creditors for that individual report new data regarding that person's pay history with their institution. Other factors also affect an individual's credit score such as the type of credit facilities an individual has, how much credit a person has, the balances owed on their credit accounts, what percentage of available credit a person has utilized, the number of recent inquires, how much new credit has been established, etc.

What is a credit score used for? Credit scores are used for various purposes and by various institutions. Some of the users of credit scores include banks and other financial institutions, insurance companies, rental companies, cellular phone companies and marketing companies. Basically any company interested in knowing how customers or potential customers will pay on a monthly basis may check your credit score.

These companies know that a credit score is a good predictor of an individual's future pay habits based on past performance with other creditors. Many of these businesses use the credit score not only to determine whether the business will approve a product / service for an individual, but also how much the product /service will cost that individual.

What types or credit scores are there? For consumer loans, there are basically two credit score types. The first credit score type is a risk score which measures the likelihood of a loan going delinquent in the next 24 months. The risk scores typically range from 0 to 1000 (The higher the score the better). The second credit score type is a delinquency score which measures the likelihood of a borrower filing bankruptcy in the next 12 months. The bankruptcy scores typically range from 100 to 1200 (The lower the score the better).