A Beginner’s Guide to Understanding Credit Scores
Credit scores play a critical role in modern financial transactions, affecting everything from loan approvals to interest rates on credit cards. For those new to the world of credit, understanding credit scores can seem like a daunting task. However, with some basic knowledge and a little guidance, you can navigate the intricacies of credit scores with confidence.
What is a Credit Score?
A credit score is a numerical representation of your creditworthiness, indicating to lenders how likely you are to repay borrowed money on time. The most commonly used credit score model in the United States is the FICO score, which ranges from 300 to 850. The higher your credit score, the more favorable terms you are likely to receive on loans and credit lines.
Factors Affecting Your Credit Score
Several factors contribute to your credit score, including:
- Payment History: This is the most crucial factor affecting your credit score.
