How Credit Scores Work

Like it or not you are judged by a number and not your situation when it comes to getting a loan. It is no secret that having a good credit score will increase your chances for obtaining a new loan or credit card but many people do not realize this value until it is too late.

It is time to learn how credit scores work. There are quite a number of factors that come into play when figuring out a credit score. The end result is a number that can range between 300 and 850. This is on an increasing scale so the higher the number. The better credit rating you have. It is possible to have a credit score of 850 but it is not easy. All payments have to be on time. How long it takes to pay off certain loans or debts is also considered. You do not need an 850 credit score just to have what is considered as "good credit". A credit score of about 650 to 700 and above is usually considered a good credit score.

The main factors are your outstanding debts and your payment history. These will weight heavily when determining your credit score. Before a lender decides to give you money they want to see if you are typically on time for your payments. The more often you are late. If you outstanding debts are very high they might not want to lend you money for fear that you will not be able to pay all your debts back (mainly theirs).

Using the credit score is an efficient way to make this decision due to the high volume of requests lenders receive each day.