Editorial Policy

What Is Your Credit Score Or Credit Rating?

default author image

By Eva Norlyk Smith, Ph.D.
May 22, 2009

Your credit score, or your credit rating, provides the financial industry with a shortcut for comparing your credit worthiness with that of other people. Your credit score helps identify the level of risk a lender takes on by lending to you.

Credit scores are also referred to as ‘FICO’ scores, an acronym for the “Fair Isaac Corporation”, which developed the standardized scoring systems used to derive your credit rating. Your credit score is intended to be an impartial, reliable, and non-discriminatory ranking, which allows financial institutions to determine ‘at-a-glance’ how your history stacks up against that of other people.

Your credit score is a number between 300 and 850. The higher your score, the more reliable and creditworthy you are deemed. There are numerous advantages to having a high credit score. It will not only make it easier for you to get approved for a loan or a new credit card, you will also typically be offered a lower interest rate, better introductory terms, or other types of more favorable loan terms. This not only gives you greater financial flexibility, it can also save you quite a bit of money over the long run. A 1% better interest rate on a mortgage, for example, could save you thousands dollars over the lifetime of the loan.