A credit score is a reckoning of an individual's creditworthiness based on an analysis of the data reflected in his or her credit report; this number provides potential lenders with the means to evaluate credit risk quickly and in a relatively objective manner. Your credit score helps determine the interest rate you will pay on your loan, and whether lenders will want to grant you credit to begin with.
To arrive at the score, values are first assigned to the variables contained in your credit report; mathematical processes then calculate the all-important number, assigning each variable a weight that reflects its relative importance. The most commonly used assessment is the Fair, Isaac & Co., or FICO, score.
As would be expected, your payment history has a big impact on your credit score. However, it's not the only factor that's considered. (Photo by Ronald Montoya)
For many years, credit scores were kept secret from consumers, available only to prospective lenders looking for a way to size up potential borrowers quickly. That has changed. Under pressure from consumer groups, Congress, state legislatures and leading lending institutions like Fannie Mae, FICO has made credit scores accessible to consumers. Additionally, information is available that sheds light on how this score is determined. While an exact breakdown of the formula used has not been revealed, it's now possible for consumers to gain some insight into what factors impact their score.