What is a credit score?

A credit score is a numerical representation of your creditworthiness. Most credit scores are between 300 and 850 and the higher the number, the better.

Credit scores are often referred to as a FICO score - because most credit bureau scores used in the US are produced from software developed by Fair Isaac and Company (or FICO.) Number weights are placed on different aspects of information in your credit report and a mathematical formula is applied to come to a final score.

Why is it important to understand your credit score?
Because companies base their decision on whether to lend you money, at least in part, on your credit score. Your score is an indication of your credit worthiness, and helps companies to decide how likely you are to repay the money they lend you in a responsible and timely manner. Not only this, your score helps to detemine at what rate of interest a creditor will lend you money - the higher your score, the lower the interest rate - and a lower interest rate can literally save you thousands of dollars over the life of a loan.

According to myfico.com the interest rate difference between a score of 701 and 698 is a half a percentage point. On a $150,000 30 year fixed mortgage, that half a percentage point could cost you nearly $19,000 over the life of the loan!
Forewarned is forearmed! as the saying goes.

No one should walk into any situation where you are going to be asking for money without knowing your credit score first. Information is power. This is especially true in any negotiating situation. And think about it - just about any situation where you need to borrow money is a negotiating situation. Whether you want to buy a house, a car or take out a credit card, your credit score is going to affect the rate of interest that you recieve. Increasingly, insurance companies and even potential employers are checking your credit score as another way to sum up what kind of "risk" you are in their decision whether to do business with you. Don't be surprised! Arm yourself with the knowledge that you need in order to negotiate the best deal for you - and that includes getting that loan at the lowest possible interest rate.

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Credit scores are not set in stone - they can and do change over time. You should think of them as representing a snap-shot of the information that is currently in your credit file, and your credit activity, as well as your actions, can change it. Read six tips that can help you to increase your credit score.
Six Tips to Increase Your Credit Score

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