Credit Score

Credit scores are calculated by credit bureaus or scoring companies using models that look at your borrowing history. The exact formulas and scales vary by country and provider, but the main factors are usually similar.

Payment history is typically the most important: paying bills on time raises a score, while late payments, defaults and bankruptcies lower it. Credit utilization, the share of available credit you are using, also matters. Other factors can include the length of your credit history, the mix of credit types and how often you apply for new credit.

A higher score generally leads to easier approval and better terms. On a 25,000 car loan over five years, the difference between an interest rate of 6% and 12% is more than 70 a month in payments, simply because of how the lender views the borrower's risk.

Building a good score takes time. Paying every bill on time, keeping card balances low, avoiding frequent credit applications and checking your credit report for errors are the most reliable ways to improve it.