Why is credit score important?

Your credit score is a crucial factor that reflects your creditworthiness to potential lenders, such as banks, insurance companies, and credit card issuers. It plays a significant role in determining whether you’ll be approved for loans or new credit cards. The calculation of your credit score takes into account various aspects of your credit history, including on-time payments, the average age of your credit accounts, outstanding balances, and the variety of credit accounts you hold.

A good credit score demonstrates that you have reliable credit behavior. Lenders have confidence in your ability to make timely payments, which opens up opportunities to negotiate favorable terms such as lower interest rates on loans and higher credit limits on credit cards. It’s worth noting that you may have multiple credit scores as your credit history is reported to different credit bureaus, each with its own scoring criteria. Additionally, lenders who request your credit reports may consider various factors that can impact your credit score. There are multiple credit score ranges based on different scoring models, but the widely used FICO® and VantageScore® calculate base credit scores within the range of 300-850.