The reality of the modern world we live in today is peoples reliance or dependence on credit. The popularity of the credit card has enabled people to buy things instantly without having to wait months or even years to save up and buy the things they want. As people have become so reliant on using credit in their lives it is important that they understand what a credit score scale is and the influential role it can play in their financial lives.
When you use credit whether it is the credit card, bank loan or house mortgage, you are borrowing money that you will have to eventually pay back. When you enter into a contract with the lending creditor you agree to a contract that you promise to pay back the money you are borrowing over a specified time. In order to evaluate the risk of lending you that money the creditor will use your credit score and other financial information about how you handle your finances. The credit score rating scale is a statistical measuring device to determine the probability of a person paying back the debt they will borrow.
There are a number of different credit score scales used by lending institutions but they basically do the same thing which is to rank your credit score. The FICO system is one of the most widely used and it uses a number range with the lowest score starting at 300 and the highest score at 850. The credit bureaus calculate the credit score based on a number of criteria. These criteria can include a person’s credit history, the length of time they have been using debt the mix of credit used, the type of credit and the amount of debt outstanding. Each of these are weighted differently and are used to either lower or increase a person’s credit score. If your score is between 350 and 500 then you will be deemed as extremely risky to lend to. Whereas, someone with a credit score between 720 and 850 will be viewed as a safer candidate to lend money to.