What is a Credit Score?

The dry, dictionary definition of a credit score is a numerical representation of a consumer's credit risk resulting from a statistical analysis of the information in their credit reports. In more friendly terms, your credit score is supposed to show whether or not you have been responsible with your money. The higher the score, the better you have been in the past about making payments on time and the more likely you are to continue doing so in the future.

Credit scores act as a shortcut so people do not have to look at your whole credit report. Decades ago, before the time of the Fair Isaac Company and statistical credit scoring models, lending was a much more involved process. People would go to a bank and conduct what was essentially an interview for a loan. The bank would ask them about what they were using the loan for, where they worked, how much money they made, and so on. In addition, the loan officer might get a copy of the loan applicant's credit report. They would then look through the report and try to determine how trustworthy the person was. They may even go through the report with the loan applicant asking them questions about specific listings and giving them an opportunity to explain any negative information. When this was completed, the loan officer would use all this information to decide whether or not to grant the loan and what interest rate the bank would charge.

This was a highly personal, yet very inefficient process. As credit became a larger part of our economy, there was a need to simplify the process. Credit scores were the result.

A credit score is designed to make it so lenders do not have to spend time reading through all the details of a credit report. In fact, most lenders today never even look at your credit reports. The credit score takes the information in your credit report, determines which items should increase your credit score and which items will lower your credit score, figure out how many points each item represents and how the items interact with each other, applying all this to a base score, and producing a three digit number that lenders can use to determine credit risk.

This made it much easier for lenders to use the information in credit reports and today when applying for a loan, lenders can usually tell whether or not you qualify for a loan in minutes based solely on your credit score, the amount of money you make, and your employment history.

Credit scoring made things so easy that even non-lenders have begun using credit scores. Car insurance companies have determined that people with low credit scores are more likely to file insurance claims so most will use your credit score when determining your insurance premiums. Many employers also look at your credit score and will avoid hiring people with low credit scores.

Ultimately, your credit score has become so much more than a number. When people look at your credit score, they see much more than a 'statistical analysis of your credit report'. When you have a low credit score, they see a deadbeat. A person who is reckless and irresponsible. Someone who is more likely to skip out on a rent check, wreck their car, or slack off at work. When you have a good credit score, people see the opposite. They see someone who is dependable and can be counted on to repay their debts, work hard, and follow the rules.

The problem is that in many cases, who you are and who your credit score says you are is not the same thing. This is what makes credit repair necessary.

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