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The Credit Score

Starting from the ground up, a credit score is a method to determine whether or not you will pay back borrowed money. The Fair Isaac Corporation created an algorithm to compute whether or not borrowers would repay their debts. This algorithm helped eliminate discrimination that potential borrowers faced due to age, sex, race and marital status. Rather than taking these discriminatory factors into account, the algorithm takes objective factors such as payment history, types of credit available, current debt, credit length, and number of inquiries into account. Each factor is weighted differently with payment history being the most heavily weighted at 35%. And now, years later the FICO score is the most common method to measure credit.  Maintaining a good credit score can be difficult but it can be done. make sure to pay bills on time, keep inquiries to a minimum, utilize different types of credit, keep the ratio of credit used to available credit low, and keep accounts of good credit open for a long time. 

Credit affects shelter, transportation, employment, entrepreneurship, and utility services. Want to buy a house? Maybe just rent?  Mortgage lenders and landlords will look at your credit. Mortgage lenders and landlords want to avoid defaults and evictions, respectively. The chances of a mortgage lender handing a large loan at a nice interest rate to a person with a bad credit score are slim to none. More likely, if they manage to receive a loan, it will be at an outrageous rate. The landlord will refuse to rent their apartment or house to you and instead rent their property out to a person with a credit score above 720. Furthermore, if you want to start a business or buy a car you need to have good credit. All lenders will look at your credit score before giving you a loan. Having a respectable credit score will help you get that loan, and even more so, it will help you receive a decent interest rate. Even establishing utility services requires good credit. Before setting up phone services the service provider will also check your credit report to determine whether or not they will give you a loan.

            Your credit report is a real look into your life. It shows all your payment history and can prove to be useful in helping you get a loan if your payment history is positive. Your credit score is merely the tip of the iceberg and the credit score is what is hidden beneath. Checking your credit report regularly can help prevent major discrepancies. Checking your credit does not affect your score and may actually reveal some discrepancies so never hesitate to take a look.

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