How Credit Scores Work

We depend on credit for so many important things in life - whether to buy a car, a house or a computer or get a student loan. A three-digit number - your credit score - can determine whether you can do these things, and even how much it will cost.

As a simple decision to buy a house or a car? If you've read How Credit Reports Work, you know that your credit report contains a story of how you paid your bills, the amount of credit you have open, and anything else that will affect the creditworthiness. Your credit score is reduced all this information to the three-digit number. Using a credit score, lenders can not predict the precise about how likely the borrower must repay the loan and pay on time. It 's like electronics stores and department stores offer instant credit.

This very large, which affects the amount you pay for credit, insurance and other necessities of life, used to hide from consumers. Until recently, only lenders and other businesses that used the score could have access. Fair Isaac and Company, which developed the scoring, said the score would only complicate consumers because there was nothing to tell you what it means or what lenders were looking for.

In 2001, however, everything changed because of pressure from Congress, industry and consumer groups. Now you can view your credit score - free - from banks and credit monitoring services.

But to help us understand the number and, finally, learn to improve, we will know how it is calculated.