A credit score is a mathematical computation that results in a number that’s used to help lenders determine how likely it is that you’ll pay back a loan. Your score is based on how you’ve handled paying back loans in the past. The higher your score, the less risk you pose of paying late or defaulting and the lower your interest rate. Hence, a higher credit score makes a loan less expensive for you.
The most frequently used credit score is the FICO score, which ranges from 300-850. They are created using software developed by Fair Isaacs Corporation. Most people score in the 600-700 range. Scores above 700 are desirable. Scores below 600 are considered a financial risk to lenders and creditors. While scores may vary among bureaus, they generally represent the same credit risk.
FICO scores are based on five factors. The level of importance of each factor varies by credit profile, and your profile changes over time. In general, they’re weighted as follows:
Payment history (35%)
Amounts owed (30%)
How long you’ve have credit (15%)
Amount of new credit (10%)
Types of credit used (10%)