A credit score can make or break the interest rate you are eligible for. Ultimately, this can be the difference in hundreds of dollars on your mortgage per month. In other words, understanding credit scores is one of the most important things you can do in the mortgage process.
Various aspects of a credit score meaning are discussed in other articles on this site. The purpose of this article is to answer the question, "What do credit scores mean?" in the simplest of terms.
To do this, let's start with the definition.
Credit Score: A numerical representation of the level of risk associated with a borrower at a given point in time.
While there are different ways of scoring credit, the only one that will really matter is the standard set by Fair Isaac & Co. known as a FICO score. The FICO score range goes from 300 which represents the highest risk to 850 which represents the lowest risk.
There are three credit bureaus responsible for computing FICO scores. Each one will arrive at a different score and in most cases, lenders will use the middle score of the three to make a determination on your credit worthiness. The credit bureaus are:
Beyond definitions and who administers the scores, a credit score meaning basically boils down to your ability to gain credit at a favorable interest rate. A good credit score can benefit you for any kind of loan whether it's for a mortgage, a car or a credit card.
