“One is scoring like a basketball game, one is like a football game and one is scoring like a hockey game,” said McCreary, who added that you shouldn’t worry if one agency gives you a few points less than others. But each produces a slightly different score. While we know generally what factors into the credit scores, the agencies don’t share their specific formulas with the public. Each has its own model to calculate credit scores.
The three most used are Experian, Equifax and TransUnion. While the idea of credit scores is simple, the way they’re determined is more complicated.Ĭredit scores can come from several credit reporting agencies. “It might mean that you’re paying out more money over the lifetime of a loan every single month.”
Instead of a 2% interest rate, we’re going to give you a 3% interest rate,'” said Kristin Myers, editor in chief of The Balance, a personal finance website. “Essentially, the bank will say ‘Hey, you don’t have a great credit score. But if it’s low, you can borrow less or no money, or borrow money with a high interest rate, which can then create more debt.īanks, landlords and insurance companies look at your credit score to determine the type of credit card that you can get approved for, whether you are the right fit for an apartment, and your insurance rate, among other things. If your credit score is high, you can borrow more money. “It’s a score that is going to determine how comfortable people are to lend you money,” McCreary said. Credit scores are based on your credit history and range from 300 to 850. Here’s a look at how you can create healthy habits to avoid having a low credit score:Ī credit score is a mathematical formula that helps lenders determine how likely you are to pay back a loan. “There’s a huge cost to having a low credit score that happens to people, an actual true financial cost to them, and it’s a shame that people don’t learn about this or know about it or pay attention to it until usually it’s too late,” said Colleen McCreary, consumer financial advocate at Credit Karma. Your credit score affects whether you can get a credit card, rent an apartment, buy a house, start a business, or even get a cell phone contract.Ī low credit score can limit your choice of loans or determine if you can get one at all - and if you can, it might have a high interest rate.
But do you know how it’s calculated and why it’s important? NEW YORK (AP) - You know credit scores exist.
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