A credit risk score is a three-digit number that lenders use to determine how creditworthy you are. It's the result of a complicated formula that takes into account the information contained in your credit report.
Range
Credit scores range from 350-850. The higher the score, the more creditworthy you are. A score of 720+ is considered to be good. Only 12 percent of Americans have credit scores above 800.
Features
The exact formula used to calculate a credit risk score is secret. What is known is that it includes your borrowing history, your payment history, how much of your credit line you're using, how often you apply for credit and other factors.
Significance
It's hard to overestimate the importance of your credit score. Individuals with low credit scores have a hard time borrowing money. If they are approved for a credit card or a loan, they must pay an extra high interest rate. People with low scores can be turned down for insurance policies and even jobs.
Types
There are three credit bureaus: Experian, TransUnion and Equifax. Each bureau uses a slightly different formula to calculate the credit score. Therefore, every person has at least three different credit scores.
Prevention/Solution
If you want to raise your credit score, make an effort to keep up with all monthly payments. Do not max out credit cards or loans. Do not apply for too much credit in a short period of time. Do not cancel credit cards as soon as you've paid them off.
References
Writer Bio
R. Sinclair is a freelance copywriter and researcher. She writes about personal finance, health, technology and travel. Her work has been published in numerous magazines and on specialist websites.