A credit score is a numerical value that summarizes all of the information appearing on an individual’s credit report. Credit scores allow lenders and creditors to quickly determine the terms that apply to individual loans as well as qualify an individual for new lines of credit or loans.
Credit scores are frequently used by traditional lending institutions, such as local banks, to determine the interest rate charged on a loan. A poor credit score can also result in creditors, such as an electric utility, to require a deposit prior to establishing an account.
Generally, a credit score is based on four criteria:
- Loan repayment history
- Outstanding loan balances
- Credit history
- Diversity of credit in use
There are three major credit reporting agencies: Equifax, TransUnion, and Experian. Each agency will have a slightly different method for determining a numerical credit score. Generally, scores range from 300 to around 800, with a national average in the 670 to 690 range.