A credit score is a numerical tool that determines how likely you are to pay your bills on time. This 3-digit number typically ranges from 300 to 850. The higher the credit scores, the lower the credit risk and vice versa.
A higher credit score correlates to lower risk as it shows the reliability of a borrower to repay his/her credit. Generally speaking, low risk means a lower interest rate for the borrower. Higher risk for lenders translates to a higher interest rate for borrowers to offset any potential bad debts or losses down the line.
There are three credit bureaus, namely Transunion, Experian, and Equifax, that each has a unique way to calculate your credit score. Each of the bureaus has an in-house scoring model that uses various data points, such as your bill payment history, the amount of credit you have, among several other factors, to come up with a credit score for you.
Mortgage lenders specifically consider your median score from the three scores available.
To recap:
• A high credit score is always favorable when applying to an array of different services such as a mortgage loan, car loan, credit cards, and more
• A score above 690 is considered to be good