We’ve all seen commercials asking whether we viewers know what our credit score is. Few of us probably know this number off the top of our heads, and that’s in part because it’s a rating that can change over time. But before we get to how to improve your credit score, we first need to understand what it is and why it’s important for your financial future.
Understanding credit scores
Financial education resource Investopedia explains it this way: “Your credit score is a number that represents the risk a lender takes when you borrow money.” When lenders see a higher score, they understand that you pose a lower risk as a borrower. Your score helps a lender determine the interest rate they’ll offer you, and in some cases whether you’ll be offered a loan at all.
Your score is calculated with a formula “that considers factors like payment history, overall debt levels, and the number of credit accounts the individual has open.” Contrary to what you might have heard, your job and your income do not have direct roles in your score.
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