A credit score is a three-digit number based on a borrower’s bill-paying history and debt profile and statistical information about other borrowers that lenders use to determine the likelihood of certain credit behaviors, including whether you will pay on time.
Your credit score is key information that you need to have a complete understanding of your credit profile. Your credit score will have an important impact on the interest rate you will pay to borrow money. Knowing your credit score allows you to question the accuracy of the score and to negotiate the best rates with lenders. A credit score is not included in a consumer credit report and must be purchased separately.
A consumer credit reporting agency must sell you a credit score but can charge you a reasonable fee. Increasingly, credit scores are being used for purposes other than determining whether you will default on a loan or make late payments. For example, some insurers are using low credit scores, as indicators to identify individuals they believe are more likely to make claims against their insurance policies. These insurance companies maintain that there is a correlation between poor credit and filing multiple insurance claims. There have been challenges to these practices and legislative attempt to ban this practice. Nonetheless, the practice persists. An accurate credit score can make the difference not only in interest rates charged on loans, but also on the availability and cost of insurance, an important essential for most families.