What is a credit score? How does credit score works?

Every person living in the United States has three things when they are born, a birth certificate, a social security number and a credit score. A credit score is a number that is calculated by the amount of credit you have, how much you owe and what your payment history is. These calculations are then tallied up and sent to three credit reporting agencies. Trans Union, Equifax and Experian.

What basically happens is that when you receive your very first credit card, whether it is a major card like Master Card, Visa or American Express or small store cards like Home Depot or Macys. Every time you make a purchase it gets reported to one or all three of these agencies by the store in which you made these purchases. The store or major card will tell the reporting agencies that you have made this purchase on this date and this is when it will be due by.

Now comes the date when they become due, if you and when you make a payment it is also reported to the reporting agencies and if you make your payment in full and on time your credit score will be perfect but if you make your payment on time and pay partially that is Ok too. The only time your credit score will work against you is if you don’t pay on time more than once. Then your credit score will be less than perfect.

The important thing to know about credit scoring is that it will fluctuate, if at some point in time, your score is low and in the course of time you pay off some debts that you may have then your score will rise again. A perfect credit score is 850. If you can manage your credit then you can maintain that perfect or near perfect score. With a perfect score bigger purchases that you make later in life can help you such as buying a home.