It is like a report card. Similar to a professional resume, a credit report is a record of your payment history. It is used by credit card companies, home equity lenders, auto loan lenders and financial institutions when you apply for credit or a loan. It provides creditors a scoring of your payment history.

Developed with a computer model by Fair, Isaac & Co, the FICO score is like your repayment grade. A credit score is intended to be a summary of your credit history. The higher your score, the better your credit means the better chance you have for borrowing money. A low score can prevent you from getting a credit card or loan with a low interest rate. Additionally, certain lenders use credit scores and other information to set the "price" for a loan.

Tallying up the numbers
The credit industry assesses a direct correlation between low and high credit scores. In other words, the lower your score the harder it may be to obtain credit approval. A credit score can range from 300 to 900. The average score is around 750. TransUnion, Equifax and Experian are the three main credit bureaus. The higher your credit score, the less risk it poses to the creditor or lender. Additionally, a credit history can vary from credit bureau, to credit bureau. Potentially, a person can have a high score with one credit bureau.

The Way Your Credit Score Is Assessed
Your credit score is approximated with various factors. The FICO scoring factors a percentage of the following categories, other companies may use other considerations to determine a score.

• The lifespan of your credit history accounts for 15% of your credit score. The longer accounts have been opened, the better.



• The variations of credit in use accounts for roughly ten percent. If you have several accounts from finance companies, it can potentially lower your credit score. Financing companies can help your score when there is not a lot of other information to base a score.



• Your payment history is the most important aspect of your credit report If you have had a recent problem paying your bills over 30 day late payments, it will lower your score. Your payment pattern accounts for 35 percent of your rating. Late payments can hinder your credit standing more than a bankruptcy filed five years ago.
  

• When you have overwhelming or outstanding debt, it is likely to have a negative effect on your score. If you have a low balance on two credit cards, it is scored higher than a hefty balance on one credit card.



• Ten percent of your credit score is based on the number of recent inquiries on your report. If you have recently applied for new loans or credit cars accounts, it may negatively affect your score. (When you are shopping for a mortgage, your credit should not be affected for a one-month period.)