What are credit scores? How can you get one? Can they be used to help you buy things? Can you fix them? These are all questions that people ask when they first get interested in credit scores.
A credit score, also known as a credit rating, is a numerical value calculated on an individual's credit reports to represent the creditworthiness of an individual. The credit rating formula is based on the amount of current and established debt that an individual has, the amount of credit history they have, their payment history, the age of the credit account, and any recent inquiries made to their credit report. This credit score, or credit rating, is often used as a primary basis for deciding whether or not to issue credit to someone. A credit score most commonly is based on information from three credit reports, most commonly sourced from Experian, Equifax, and TransUnion.
There are several different types of credit ratings that you may encounter on your credit reports. There are the FICO (Fair Isaac & Company) credit scores and the Standard & Poor's credit scores. These credit scores are based on mathematical algorithms created by Fair Isaac & Company. While FICO and S&P are the most commonly referred to credit ratings, there are actually many other credit information companies that also create similar credit scores. These credit information companies are named after the Fair Isaac & Company that created them. See top credit analysis guides or learn more on how credit scoring is done.
You may encounter a credit score referred to as a "multi-type credit score", which is another way of saying that it is the combination of all three credit scores. A "quadrant" credit rating is one type of multi-type credit score that factors in both the FICO and the other two types. One example of this would be a "quadrant credit score". Any time a lender or business requests your credit report in order to make a lending decision, it will first look at your current credit scores.
The next piece of information that is requested of your credit report is whether or not you have any open accounts that are not used or paid down. Lenders refer to these inquiries as "non-essential", "Limited Activity", "closed" or" delinquent". These inquiries will lower your credit scores significantly, sometimes by hundreds of points. Many lenders only look at non-essential inquiries when you are applying for car insurance, apartment insurance, cell phone insurance, health insurance, rent or mortgage insurance, and home equity loans.
The last question that lenders ask is what kind of debt you have in your current financial situation. It is important to know what kinds of debt they are considering for your credit scoring model. This information is usually referred to as "risk", or "risk factors". For instance, credit inquiries that show a high level of activity are considered excellent, while inquiries that show little activity are considered bad. An example of this would be having a bank account that is dormant for 90 days or less. Other examples of risk factors include opening multiple credit cards, having a history of bankruptcy, and having too many unpaid accounts. You can read more on this here: https://www.huffpost.com/entry/raise-credit-score-mortgage-house_l_5d0195c2e4b0304a1209884b.