A credit score is one of the most important numbers in one's life and is critical to managing personal finances. This score factors into major purchasing decisions and essentially determines an individual's financial future.
Also known as a FICO score, this figure is used to determine everything about mortgages, interest rates, credit limits and auto loans. It can be accessed by potential employers, cell phone companies, insurance providers and landlords. The three-digit number is calculated by five variables:
Thirty-five percent of the score is the ability to pay bills in a timely manner, 30 percent is one's debt-to-credit limit ratio, 15 percent accounts for how long one has had credit – this cannot be changed, – 10 percent is how many credit cards and loans are in the individual's name and 10 percent is how many new accounts he or she has opened or applied for recently.
All of this information is reported to three major credit bureaus – Experian, Equifax and TransUnion.
Scores range from 300 to 850 and are divided into six levels. Ideally, consumers want to have 760 or higher, but those with lower numbers may be eligible to apply for a bad credit loan if they demonstrate the need.