It’s financial literacy month, so this post is focused on something all consumers should know: How are credit scores calculated?
Banks and lenders use credit scores to see how reliable consumers (people like you and me) are and to understand the likelihood that they will pay back a loan.
A good credit score = a reliable consumer.
A bad credit score = a risky consumer.
Most consumers have a general idea of what a credit score is, but we’ll dive into more of the nuances immediately below.
On the other hand, less consumers understand how credit scores are calculated. There are five simple components that make up a credit score, see further below to learn how they come together to form your credit score.