What is a credit score?

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Credit scores provide lenders with insight about your spending habits, your discipline to pay debt and your capability to take on more financial obligations.  A credit score tells lenders about your ability to make payments on time, for example.  In the United States, having a credit score is important in reviewing an application for a loan.

Some people think that paying cash for everything is better, but even if that has advantages, it does not help to establish credit.

A credit score is a 3-digit number ranging from 300 to 850 that represents how likely people are to repay debt. Anytime you apply for a loan or a credit card, most banks or lenders run a credit report before committing to extend credit and to determine what terms they are willing to offer you.

Currently, credit scores are calculated by 3 main credit bureaus – Equifax, Experian and Transunion that use various scoring methods utilizing financial factors such as: payment history, length of time for established credit, types of credit/trade lines (mortgage, credit cards, auto loans, personal loans, etc.), credit limits and what percentage is available vs. owed, amount of debt you have and the # of hard inquiries showing on your reports. Remember that a credit score has nothing to do with personal information like race, gender, religion, marital status or national origin.

Why are your scores so different?

There are different ways to calculate credit scores, so it’s pretty normal to have 3 different scores. One from Equifax, one from Experian and one from TransUnion. Why? Your creditors may not report your history to all the credit bureaus.

In addition, lenders may have a scoring model request that puts more emphasis on various data associated with your accounts

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