Importance of Credit Scores



Successful credit applications, as well as reduced rates of interest on credit cards, car loans, home mortgages, etc, largely depend on good credit scores.  The higher the score, the higher the likelihood of approval, and the lower the interest rate on repayments.

When renting a home or apartment, landlords may check a credit report do determine a renter’s credit score before accepting the contract.  Without decent scores, rental requests may be denied by a landlord, perceiving the applicant to be a bad financial risk.  Scores can also determine how large a deposit must be paid for utilities such as telephone service, electricity, or gas service.

Credit lenders are always looking at scores, determining whether to change an interest rate, or perhaps alter the existing credit limit on a credit card.  If they are proposing to issue a special offer to their customer base by mail, the credit scores will determine which customers will qualify to receive it.  Having good scores makes financial dealings quite a bit easier overall, and can save considerable amounts of money in the long run due to lower interest rates.

So what is a good credit score?  The term ‘ credit score’ usually refers to the most commonly used scoring system called the FICO score (created by Fair Isaac Corporation, hence its name FICO).  The system offers a range of scores between 300 and 850, by which financial risk is calculated.  FICO credit scores over 700 indicate to a lender that the person is low risk and displays good financial stability, and represents an ideal candidate.  On the other hand, should they be presented with a FICO score in the 500s, this would indicate a high risk and may jeopardize the applicant’s chance of success.   It is worth noting that credit scores are not ’set in stone’, so to speak.  As debt management improves, so does the score.