A credit score is a three-digit number that represents your creditworthiness to lenders. This score, typically ranging from 300 to 850, is based on your credit history, including how consistently you pay your bills, how much debt you have, and the length of your credit history. The higher your score, the better your credit profile appears to lenders, which can result in lower interest rates and better loan terms.

Credit scores are calculated using several factors:

• Payment History (35%): This is the most critical factor, reflecting whether you have paid past credit accounts on time.
• Amounts Owed (30%): This represents your credit utilization ratio, or the amount of credit you are using relative to your total available credit. A lower ratio is generally better.
• Length of Credit History (15%): Longer credit histories tend to yield higher scores, as they provide more data on your long-term credit behavior.
• Credit Mix (10%): A variety of credit types (credit cards, mortgages, auto loans, etc.) can positively impact your score.
• New Credit (10%): Frequent applications for new credit can lower your score temporarily due to hard inquiries on your credit report.

Maintaining a healthy credit score is essential for obtaining favorable credit terms. Lenders use your credit score to assess the risk of lending you money. A higher score indicates a lower risk, potentially saving you thousands in interest over time. To maintain or improve your credit score, ensure timely payments, keep credit card balances low, avoid opening multiple new accounts rapidly, and monitor your credit report for errors.