You must have heard about the term credit score, or maybe you have even checked yours a couple of times. However, do you truly understand what it is and how it works? Well, if you wish to enhance your understanding of the same, then you must continue reading this article.

What is a credit score and who creates it?

• A credit score is a statistical number based on your credit history, and it determines your creditworthiness.
• This figure is created using information from your credit report. It helps lenders analyze how likely you are to repay your debts based on your history of paying other loans.
• FICO (Fair Isaac Corporation) creates most credit scores used by lenders and insurance companies.

What is a good credit score?
The definition of good or bad credit score can vary from one lender to another. However, here are some basic guidelines –

• 760 – 850: Excellent
• 720 – 760: Very good
• 680 – 720: Average/good
• 620 – 680: Fair/poor
• Below 620: Poor

What are some things everyone should know about credit scores?

• Credit scores differ from credit reports: Credit scores are calculated using information from your credit reports, which includes credit account details, personal debt collection amounts, public records, etc.
• Five core factors affect your credit score: These factors include credit utilization, payment history, average credit age, inquiries, and account mix.
• Checking your credit score won’t hurt it: Only hard inquiries by lenders leave a negative impact on your scores, and this effect is small and temporary.
• You can get credit scores and reports for free: You can get your credit scores for free from various places. You can also seek free credit reports from major credit reporting agencies.
• It is not just the credit score that affects lending decisions: While credit score is a major factor, it is not the only factor that lenders consider while extending a loan.

What is a bad credit score?

• A bad credit score describes a record of your past failures of payments and other credit agreements, which can make you incapable of getting new loans.
• A bad credit score typically means that you have not paid your credit and other obligations on time and shows bankruptcies or legal judgments against you.
• A bad credit score is disappointing, but the good news is that you are not stuck with your bad credit scores forever.
• You can get away with them with the help of some credit management and improvement habits, which are known to improve credit scores efficiently.

How to repair a bad credit score?
If you wish to repair your credit score, then you can follow these tips:

• Pay all your bills on time: As the biggest thing influencing your credit score is your payment history, you can end up repairing a bad credit score by repaying your dues on time. Timely payments can improve your credit history, and therefore, your credit score becomes better as well.
• Clear up collection accounts: Instead of transferring your debt to new accounts, you should pay them off.
• Credit utilization ratio: Fix your credit utilization ratio as the debt-to-credit ratio is one of the most crucial factors that determine consumer credit.