It is important to know how credit scoring works and how it can benefit you. Credit scores are derived from payment histories from credit card companies, car loans and home loans. Information is also obtained from court records such as bankruptcy, tax liens and judments. A credit score is a numerical representation of your statistical likelihood to repay credit that has been extended to you.
The most widely used model for assigning credit scores was developed by Fair Isaac & Company and it is called a FICO score. Scores range from 300 to 850. The higher the score, the better the credit rating. Typically a score of 640 or higher is necessary to obtain a mortgage and for conventional loans, most lenders will have better interest rates for the those with higher scores.