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WHAT IS A CREDIT SCORE?

13 JULY 2017

A credit score is an important tool used by every lender. It affects their decision whether to grant you a loan or a credit card. But where does the credit score come from and how to calculate it? What makes it high and which factors make it low? Let's find out.

Why Is a Credit Score So Important?

Every lender checks your credit score (which is also called „rating”). Why? To be sure that you're solid and you repay your debts on time. That's crucial for the lender to know that your trustworthy and you don't have any payment delays. To cut a long story short, the credit score is a numerical symbol of your creditworthiness.

To understand where a credit score comes from, and what makes it high, at first, you need to know what a credit report is and what does it include.

Credit Report

A credit report is a picture of one's credit history. It includes all information about your past debts, which is collected by credit bureaus. In the USA there are 3 major credit bureaus: Experian, TransUnion, and Equifax. While in the UK there are: Experian, Equifax, and Callcredit, which works closely with the US partner – TransUnion.

Bureaus create reports based on information provided by lenders and card issuers. Most of these are similar, but there can be small differences between every bureau.

What Information Can We Find In a Credit Report?

• Current and previous addresses,

• Social Security number,

• Employment history,

• Number and type of credit accounts,

• Detailed credit account information,

• Credit limits,

• List of credit inquiries.

Credit reports keep negative information for seven years.

All these negative and positive information show lenders how solid you were with paying off your debts in the past.

Based on your credit report you are given a credit score.

Credit Score

A credit score is a numerical expression based on analysis of one's credit files. It represents a three-digit number, ranging from 300 to 850 (850 is the highest score).

It's a tool used by lenders which helps them to determine whether they can trust you and grant you a loan, credit or mortgage. When your credit score is high, you can count on preferential payment conditions. A high score can provide you with a lower interest rate.

Every rating is based on a credit report, which comes from various credit bureaus. Lenders use a mathematical model to calculate your score based on these information.

A Credit Score Consists Of the Following Information:

• Payment history (35%)

• Amounts owed (30%)

• Length of credit history (15%)

• How many types of credit in use (10%)

• Credit accounts inquiries (10%)

Every rating is linked to his owner's Social Security number.

What Factors Affect Your Credit Score?

Your credit history: number of accounts repaid on time have a good impact on your rating. Late or missed payments make it lower.

Credit applications: when you get many negative responses, it lowers your score.

The length of your credit history: the longer one you have, the better.

Available credit utilization: the lower is the percentage of your credit limits you are using, the better your score will be.

No Credit Score?

It is also crucial to understand, that you don't start off with a good credit score. You start off with no information. That happens when you don't have any previous credit activity.

Without a score, it's difficult to get a loan, especially in a bank. Unfortunately, you have to prove that you are reliable and you can manage your debt by making regular payments.

What To Do To Build Up a Credit Score From Scratches?

Get a credit card. Don't use more than 30% of your limit and remember to pay the bills on time. Good payment history is very important.

Get a secured card. To open the account you need to put down a security deposit. Your credit limit is the amount of the deposit. Use is reasonable to get your deposit back.

Research shows that on average it takes up to 5 months to receive a credit score.


Briefly speaking, personal credit score is a number calculated by lenders on the basis of everyone's credit history. It represents our creditworthiness and can provide us with a lower interest rate. It's good to keep it high!


Author: Olga Gierszal

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