What is a credit score, and why is it important?

A credit score is a numerical representation of a person’s creditworthiness, typically ranging from 300 to 850. It is calculated using information from credit reports, such as payment history, outstanding debt, length of credit history, types of credit accounts, and new credit inquiries. A higher score signals responsible borrowing and repayment behavior, while a lower score suggests financial risk. Credit scores are important because they influence a person’s ability to borrow money, rent an apartment, or even secure certain jobs. Lenders use credit scores to determine interest rates and loan approvals. A good score can lead to lower borrowing costs and easier access to financial opportunities, while a poor score may result in higher interest rates or loan denials.