Think of your credit score as your financial GPA. Instead of determining your academic prowess, however, it tells lenders whether you represent a significant risk for credit.
Calculating Your Fiscal Grades
Just like a number scrawled at the top of a term paper, a credit score is rendered as a specific number. Most range from 300 to 850, though different consumer reporting agencies (or credit bureaus) use their own numbers and algorithms to calculate consumers' credit scores.
Keeping Up with Your Classmates
Your credit score changes based on your financial activity. If you pay off a credit card balance, for example, your credit score increases. When you miss a payment, on the other hand, the number decreases.
If you hear someone talking about "good credit" versus "bad credit," they're referring to credit scores. The higher the number, the better the credit rating.
Using Your Transcripts
Your credit score and report serve as your financial transcripts. They tell lenders and creditors about your credit worthiness.
A mortgage lender, for instance, might not extend a home loan to a consumer with a low credit score. Since low numbers indicate past financial problems, the creditor does not want to assume the risk of the customer defaulting on the loan.
Building Your Credit
Unlike academic records, credit scores change constantly over your entire lifetime. If you possess a low credit score, work to improve it by paying bills on time and using credit responsibly.
If you want to know your credit score or if you're ready to start building your credit, sign up for Mint to take advantage of numerous financial tools and resources. As your credit score improves, more options become available to you.