Your Credit Score

Creditors use credit scoring systems to determine if you'd be a good risk for credit cards, auto loans, mortgages and insurance. A higher credit score means you are likely to be a good risk, which, in turn, means you will be more likely to get credit or insurance-or pay less for it.

What Is Credit Scoring?

Credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they're due, collection actions, outstanding debt and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles.

Your free credit report does not usually include your credit score. A fee is usually charged to obtain your credit score. Each credit reporting agency has their own formula for calculating your credit score. Your score may determine whether you get a loan, what interest rate you will pay. A low score may result in a higher interest rate, costing you thousands of dollars in interest.