Facts About Credit Scores

People not familiar with the term credit score often assume it refers to the score that we get via our credit cards for the number of purchases made every year. Credit scores are actually the grade you get dependant on how reliable a person is in paying their debts and credits.

You can improve a lower credit score by a variety of factors:
- How much outstanding debt you have
- How regular and consistent you are with payments
- How much you typically spend and your recent salary level

It will also be determined by your past credits and how you were as a borrower. These are all being gathered and recorded by credit bureaus and credit reference agencies such as Equifax, TransUnion and Experian.

Credit scores are important because it can mean being accepted or rejected for a loan. With a really bad credit score (for example, under 600), you may find it difficult to secure a house loan, a car loan, a school loan or even a credit card. In short, with a bad credit history, your days of borrowing money become quite short and distant.

Even private companies and government agencies use credit scores to perform a background check for current or potential employees. In essence, a credit score gives a glimpse into a person's financial savvy and sense of responsibility. This is especially true with employees that are being hired or were hired to assume posts that deal with highly sensitive financial issues or those directly in contact with money.

Cell phone and credit card companies also use credit scores to determine the clients they should target and market. People who have good credit scores are often those who have the spending power. Thus, they are good people to offer flexible mobile phone packages and credit card services.

When securing a loan, credit scores are also used to determine the kind of loan that will fit your credit profile. People who have a high credit score are typically offered much lower interest rates and longer, more flexible repayment schedules.

In contrast, those with a lower score may be refused a loan or at the very least be given a smaller amount, much higher interest rates and a shorter time frame to pay off the loan. Of course this is a direct result of credit card companies and lenders wanting to protect their interests as they weigh the risk profile of each applicant.