There are many people who have been wanting to understand what creates a credit score, but they do not really know where to begin. Well, in order to begin to understand what creates a credit score, you have to learn to understand your credit report. The credit score simply comes from a formula that generates a number, and the information from your credit report, which is compared to millions of other people, is used in the formula or algorithm. A highly accurate number (credit score) in predicting the probability that you will pay your bills is the result.
There is not one general formula that is used to compute your credit score. Different lenders use different models to calculate whether you should be given credit, how much, and at what interest rate. One of the most popular scoring models used is the FICO score, which has a scale that runs from 300 to 850. Most of the population falls somewhere between 600 and 800, and any score at 720 or above will get you the best mortgage loan rates in the real estate market. Read more…