Almost everyone has a credit rating.  Credit ratings are extremely important because the better your rating, the less you will pay for financing on just about anything, including a home.  People with low credit ratings pay more for financing because they represent greater risk for lenders.  If it is too low, they may not be able to obtain the financing they need to buy the things they want.  If it is high, they will generally pay less for credit because they represent less of a risk for the lender.

Credit scores are generated from several sources, including each of the three national repositories of credit information.  The credit scoring tool used most often is from a company called the Fair Isaacs Corporation, from which we get the acronym, “FICO” score.  It is a three digit score ranging from 300 to 850, with most people falling into the range of 550 on the low end to 799 on the high end. 

How your FICO score is calculated can be a bit confusing, especially since each of the national repositories have slightly different results because not all creditors report to any one of them.  The FICO score derived from a combination of all three of them is the most reflective of your credit history. 

If you have a large number of open accounts, you can conceivably run up your monthly bills and be unable to pay them, so you get marked down for this on your credit score.  If you have too few accounts open or have seldom used credit, you are marked down because your history may be too sparse to project how you will perform with additional bills to pay.  It may feel like you can’t win, and in some ways that is true, but the most important factor to remember is a common sense one: 

The more prompt you are in paying your bills, the higher your credit score will be in almost every case. 

When you apply for credit of any kind these days, the creditor will check your credit report to see how reliably you have paid and how responsibly you have used credit over time.  Because it often governs how much you will pay for credit when you need it, it is very important to be aware of your credit score and to do everything possible to have the best possible score at all time.