A credit score is a rating from 300 to 850 that is assigned to those who use credit. Lenders use the scores to determine whether to give loans, the interest rates on credit cards and loans and for other financial purposes. A Tier 1 credit score is considered to be between 760 and 850.
Background
There are three major credit bureaus, as of 2009, that keep track of every American's credit rating: Equifax, Experian and Trans Union. These institutions compile data based on bank records, tax information, bankruptcy filings, law suits and other relevant financial information to determine a person's credit score.
Function
Most creditors and lenders use the FICO score that utilizes reports from the big three bureaus to determine credit scores. The higher the score, the easier it is to secure loans, get credit and buy a house or a car. The average score is about 725, while a score below 660 is regarded as more risky.
Factors
The major categories that are used to determine a credit rating are payment history, amounts owed, credit utilization, length of credit history, new credit and types of credit used.
Considerations
In a 2004 study conducted by the United States Public Interest Research Groups, or PIRG, one in four credit reports contain errors that could make it difficult for a consumer to buy a house, secure a loan or rent an apartment.
Advice
Experts recommend checking your credit score at all three credit bureaus once a year and at least six months before buying a house or making a major purchase. This way, you can remedy any errors in your report that might affect a purchase.
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