Often, people take loans from different organizations, such as banks. However, it is expected that the loans were denied to someone but given to someone else. The question that arises is here: “How is the decision of lending money made?“ Here comes the role of credit scores! This article talks about credit scores and everything related to it!
What are Credit Scores?
A credit score is an expression of an individual’s creditworthiness and is expressed in numbers. The credit score is derived from different credit bureaus and other credible sources. There are three major credit bureaus: Experian, Equifax, and TransUnion. It is essential to understand that credit scores are not displayed somewhere as a single score. The scores are calculated by using the information on the reports by credit bureaus. Banks and others then use the scores to know the likelihood of repayment by an individual. The credit bureaus have different scoring methods and use additional information to give the verdict; therefore, the scores vary from one credit bureau to another.
Why are Credit Scores Important?
Credit scores are important because they serve as a decision-making tool for banks and other lenders. Also known as risk scores, they help lenders analyze the risk associated with giving loans to an individual. People often need loans for different things; therefore, it is vital to have a good credit score. Some of the primary reasons for taking loans include funding one’s tuition fees, buying a car, getting a home, and more. All these tasks are essential in one’s life. Thus, everything that affects them must be taken seriously, such as their credit scores. 
Having a good score is integral to qualifying for a loan. Lenders would not trust some whose chances of repayments are low. Also, the interest rate on a loan is determined by the credit score. For example, people with higher chances of paying back the loans are charged a lower interest and vice versa. However, credit scores are the only determinant for lenders to decide whether to give someone a loan or not. More details of the credit report are considered. For example, the information includes the debt on one’s shoulders, length of credit accounts, types of credits, and others. All these factors add to your credit score and increase your chances of getting a loan.
What Affects the Credit Score?
Knowing the importance of a credit score, let us talk about the factors that impact the credit score. Although the elements depend on the scoring model used by the credit bureau, certain factors are common in all the models:
- The credit score is affected by the history of credit cards owned and loans taken by the individual. This includes the number of times the loan was born and the amount of loan taken.
- It is affected by the credit utilization rate, which is calculated by dividing the amount currently owed by the total credit limit.
- It caters to the number, types, and age of credit accounts of the individual.
Some other influencing factors include the total debt of the individual, history of tax payments, new credit card openings, and more. 
What is an Excellent Credit Score?
A credit score ranges between 300 and 850. An individual with a credit score of seven hundred is said to have a good score. A score above eight hundred is considered exceptional; however, most people have a credit score between 600 and 750. About 16% of the people have a credit score between 300-579 and have minimum chances of getting a loan. Eighteen percent of people have a credit score between 580-669, 21% people have a score between 670-739, 25% people have a score between 740-799, and 20% people have an exceptional score that ranges between 800-850.
One must understand credit scores to evaluate the potential of getting loans through different lenders. It is essential to have a good credit score that can be achieved by maintaining a good history of loan repayments and credit.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.