Your credit score and what it says about you

A person’s FICO credit score is not something to be taken lightly. Obtained through a system called a credit rating, it largely determines the decision creditors make about whether or not to grant you credit. A credit score can also be used to determine credit terms and rates.

The score is obtained after the evaluation of your credit report. Some of the items that appear on your credit report include the number, types, and age of accounts you have, history of paying bills, whether you pay them on time, and any outstanding debt. Creditors then use a statistical program to compare your loan repayment history with that of consumers with similar profiles.

Generally, the scoring system assigns points to each factor that has the ability to predict the person most likely to pay a debt. The credit score, which is the total number of points, predicts a person’s credit worthiness. Ideally, it represents the probability that a consumer will pay off debts when they are due.

Why is good consumer credit important to you? As already mentioned, your score largely determines the decision creditors make about whether or not to lend you money. If a lender decides to advance you credit, your score will also be used to determine the amount, as well as the terms and rates. Some insurance companies also use credit reports to anticipate your probability of filing a claim and the amount. As such, this information is helpful to them when deciding whether to provide you with insurance and the premium to charge. This includes auto insurance companies. Insurance companies refer to these scores as insurance scores.

Consumers are advised to maintain their credit worthiness for a number of reasons. Here are some other benefits you can get from having a good credit score:

• Makes it easy for landlords to approve your home and apartment rental application.

• Gives you more borrowing power. Banks and other financial institutions will find it easy to let you borrow more money at lower rates. This is mainly because a good score increases your bargaining power.

• Good credit makes you feel good about yourself, especially if you’ve had to try harder to bring your credit score from bad or bad to good.

Bottom line: While lenders often consider many factors, other than credit score, in making credit decisions, a good score is perceived as low risk. Ultimately, you will qualify for many types of loans and credit offers at the lowest rates available.