Your credit score tells lenders how likely you are to pay your bills and borrowings based on your current circumstances and past history. As such, the credit score becomes their basis for making a decision on whether or not to approve your credit application. That is why it is extremely important that you keep tabs of your credit score. The better your score, the higher the likelihood that you will be approved for a loan and the better interest rates the lender is likely to offer. Whereas, the lower your score, the less change you will have of being approved for a loan.

How Your Position On A Credit Score Scale Is Calculated

Positions on credit score scales are calculated through a complex mathematical algorithm which uses factors such as repayment history, credit history, credit availability, existing or current debts, bankruptcies if any, etc.

Who Evaluates Credit Worthiness?

The top three credit bureaus that report compile credit score scales for banks and other lending institutions are Experian, Equifax, and Transunion. All three are private companies that assign value to your credit rating based on information found in your credit report. The factors used to calculate the scores are basically the same. However, since these companies use their own unique system of credit score scales, your credit scores and reports may vary from company to company.

Moreover, some lenders do not rely solely on the information provided by these three credit bureaus. They may have their own system of analyzing future credit performance that affect whether or not they are going to approve your credit application with them.

The Earliest Credit Score Scale

The most common credit score scale system used (and the first ever) by credit reporting agencies is the FICO score, developed by Fair Isaac Corp. The FICO score has a  scale of 300-850 with 720 and above considered as "good scores". Good scores usually mean, credit worthy. However, this does not mean that those who are scoring below 720 have no chance of getting credit, since lenders may still approve credit even if the applicants have low  scores.

The Importance of Credit Score Scales

Credit score scales make it easier for lenders to make fast decisions concerning loan approvals. Since the scores represent the most precise information they need, they can make accurate decisions based on these scores much faster.

Faster loan approval processes benefit the consumer and because lenders need to spend less time mulling over a single application, they can accept more applications and approve more people.

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