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What is a Credit Score?

A credit score is a that affects nearly every aspect of your life. If you are planning your next milestone in life (renting an apartment, buying a car, or buying your first home), chances are you are looking at your credit history and credit score and how to improve it.

 

A good credit score will give you flexibility in everyday life. With a good credit score, you can qualify for a mortgage, take out a loan to start a new business or get a better interest rate for a car loan. But what exactly is a good credit score?

Let’s start with the basics first.

So, what’s a credit score?

A credit score is a summary of your credit history on your credit bureau report. Your credit report is created when you borrow money, or apply for credit, for the first time. It shows your total levels of debt, open accounts and your repayment history. It’s essentially a snapshot of how well you manage credit and lenders will determine the level of risk there is to lend you money.

How is your credit score calculated?

Your credit scores might differ depending on where you get them from. The differences are the result of different credit scoring models, credit bureaus, and types of data included in the calculation.

It is difficult to know exactly how much your credit score will change based on your actions—however, certain factors may affect your credit score including:

  • How long you’ve had credit
  • How long each credit has been on your report
  • The balance on your credit cards
  • Regular late or missed payments on your report
  • Outstanding debts
  • Your credit limit usage
  • Number of credit applications
  • Type of credit
  • Insolvency or bankruptcy


Why your credit score matters

Your credit score, and in turn your credit history, can affect your maximum borrowing limit from a financial institution.

Your credit report and score will be reviewed before they make the decision to lend you money. Depending on what’s on your report, and what your credit score is, lenders may lower and raise the interest rate they charge you to borrow money.

When you have no credit history or poor credit history, you may have a challenging time getting approved for a credit card, loan or mortgage.

Poor credit history can also hinder you from renting a house/apartment. With your credit score affecting so many factors, learning how to build and maintain good credit is important.

Credit history can also help protect you from identity theft. You can review your credit history to find out if someone has tried to open a credit card or other loans in your name and close the accounts.

Best practice

It is a best practice to check you credit report annually to ensure accuracy and prevent identity theft. Often, you can check your credit report for free through your bank.

If you need help improving or rebuilding your credit, check out EP Climb Credit—our credit education division — where you can start your journey today for free.

Having trouble getting approved for a credit card? Our EP Climb Credit Card could be for you and approval is quick, apply today.

Don’t know how to check your credit report? Request a complimentary credit consultation.

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