Determining a credit score is a statistical procedure that is used to quickly assess the credit risk of a loan applicant. A credit score rates the potential risk that a borrower will not pay back a loan. A FICO credit score (one of the more popular scoring models) can range from 300 (high risk) to 850 (low risk). Studies have shown that credit scores can predict the risk for both insurance and credit.
A credit score takes into account both positive and negative information found in a credit report. The most important factor for a good credit score is paying your bills on time. Even if you owe a small amount of debt, it's critical that you make your payments on time.
Ways to improve your credit score:
While it may be tempting, you shouldn't close unused credit cards as a short-term strategy to raise your score. Owing the same amount, but having fewer open accounts can actually lower your credit score because you're utilizing more of your available credit.
Credit reporting agencies are to collect information about you and your credit history from public records, creditors and other reliable sources. These agencies then make your credit history available to current creditors, prospective lenders, landlords, government departments and insurance agencies.