What is a Credit Score?

A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. A Credit score ranges from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan. If you have a low credit score and you do manage to get approved for credit then your interest rate will be much higher than someone who had a good credit score and borrowed money. Therefore, having a high credit score can save many thousands of dollars over the life of your mortgage, auto loan, or credit card.

What Cooks Up Your Credit Score? Let's Break It Down!

Imagine your credit score is like a giant, yummy pie. Each slice of this pie represents something different that adds up to make your whole score. Let's slice it up and see what's inside!

1. Payment History: The Biggest Slice!

This is the big cheese, the slice that takes up most room on your plate. It's all about whether you pay your bills on time or not. Think of it like brushing your teeth; do it regularly, and you'll have a sparkling credit smile!

2. Capacity and Amount Owed: The Meaty Part

This slice is all about how much you owe. It’s like a backpack – the more you fill it, the heavier it gets. Keep it light, and you can run faster in the credit race!

3. Length of Credit: The Seasoning

How long you've had credit is like the age of a fine cheese – the older, the better. It shows you've been playing the credit game for a long time, and you know the rules!

4. New Credit: The Fresh Topping

This slice looks at how many new accounts or credit checks you have. It's like adding new toppings to your pizza – too much, and it gets overwhelming, but just enough can make it perfect!

5. Types of Credit Used: The Variety Spice

This is about mixing it up. Just like a salad is more interesting with different ingredients, your credit score likes to see different types of credit. A little bit of this, a little bit of that, makes for a tasty credit dish!