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A credit score is one of the most important factors in considering whether an individual or an organization is deserving to be awarded a loan. Thus, it is only right that one should have basic knowledge about what a credit score is.

In technical terms, a credit score is a value that is generated by a formula. This formula uses information on a person’s credit report, as compared to millions of other individuals’ credit reports. The value that results from the formula is highly accurate, and can be used to predict a person’s likelihood of paying his bills. A credit score is used extensively, especially in determining the interest rate that is given to a person, for instance, for a mortgage loan, credit card or car loan. The higher a person’s credit score is, the better he will look to lending companies. A person with a high credit score will most likely get the lowest rates of interest from lending companies.

There are a number of scoring categories that determine if a person is creditworthy or not. Lending organizations can use different models in order to produce different credit scores. However, the most used scoring model is the FICO scoring method. This method has a scale that starts from three hundred to eight hundred fifty. A majority of borrowers have a credit score from six hundred to eight hundred. A score that is higher than seven hundred will get a person the most advantageous interest rates, specifically on a mortgage.

No matter what the scoring method used, it is important for a person to have a high credit score if he wants to gain approval of loan applications and get better interest rates for them, as well. In order to achieve this high credit score, it is always best to pay one’s debts on time.