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Credit Score
Definition
A credit score is a three-digit number that represents a person's creditworthiness based on their credit history and financial behavior.
Explanation
Credit scores range from 300 to 850. Higher scores indicate lower credit risk. Scores are calculated using payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). A score above 700 is generally considered good.
Good credit leads to better interest rates and loan approvals. Improving your score involves paying bills on time, keeping credit utilization low, and maintaining old accounts.
Example
A 780 credit score qualifies for the best mortgage rates. A 620 score might pay 2-3% more in interest, costing tens of thousands extra on a mortgage.