A credit score is a number that lenders use to determine how likely it is that they will be repaid on time if they give someone a loan or credit card. Your credit history is the basis of your personal credit score. Your FICO® Score ranges between 300 and 850. A good credit score is important for your financial well-being because the higher your credit score, the less of a credit risk you are. Credit scores are classified into two types: generic scores and custom scores.

Many types of lenders and businesses use generic credit scores to assess general credit risk. You can obtain your generic score as a single score calculated using the same formula by all three credit reporting agencies.

Individual lenders use custom credit scores, which are developed. They rely on credit reports and other information from the lender's own portfolio, such as account history. They are either specific to the business or are used by specific types of lenders, such as credit unions. Custom credit scores can be used for specific types of lending, such as mortgages or auto loans.

Understanding Credit Score Factors and Improving Your Credit Scores

Credit score factors are the elements of your credit report that influence your credit scores. Some of the factors that may have an impact on credit scores are as follows:

1. Your total debt

2. Types of accounts

3. Number of late payments

4. Age of accounts

Factors indicate which aspects of your credit history had the greatest impact on your credit score at the time it was calculated. They will also tell you what issues you need to address in your credit history in order to become more creditworthy over time. Regularly monitoring your credit can help you keep a close eye on how these factors are affecting your score and what you might be able to do to improve it.

Why Lenders Use Credit Scores?

Prior to credit scores, lenders manually reviewed each applicant's credit report to determine whether or not to grant credit. This process was time-consuming, resulted in errors or biassed results, and allowed lenders to make decisions that may or may not have had any bearing on the applicant's ability to repay debt.

Credit scores now assist lenders in more accurately assessing risk.

1. Credit scores are consistent and objective.

2. Reflecting only your likelihood of repaying debt responsibly based on your previous credit history and current credit status.

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