Why do you think so many people believe a credit score is a good measure of financial health?

Your credit score is based on several factors: how promptly you make payments, how much you spend your available credit, how long you have had experience with borrowing and paying off debts, how many types of debts you can manage, and how old your newest account is. All these factors can give lenders a sense of how responsible you are with money in general, but particularly with debt payments.

A higher credit score increases your chances of negotiating for a higher credit limit, getting approvals for loans at lower interest rates, and getting better terms on credit cards (like more rewards and cashback). This is because lenders believe that you will be able to responsibly manage the debt they offer you. However, a good credit score still does not guarantee credit card or loan approvals because lenders also look at your income and debt-to-income (DTI) ratio. Your DTI is not calculated as part of your credit score, but is important for lenders to understand that you can afford to pay off the loan if approved.