How Your Credit Score is used
The primary purpose of a credit score is determining creditworthiness and likelihood a consumer will not default on a loan or debt. It is one of the main tools used by lenders when making the initial lending decision. While this is seen as the main use there are a few others:
Credit Score in Marketing
You might see a few credit card offers in the mail each week. This is not by accident, you are being targeted. The credit card companies use your score to determine what to send to you. This allows them to market more effectively by matching your credit worthiness to their offers.
The interest Rate a Consumer Will Pay
The interest rate on your loan might also be determined by your credit score. The better the score, the better the interest rate a consumer will be offered.
The Amount of the Load
A credit score will also be used in determining the size of the loan you will receive. This can have a great impact in large purchases such as homes (mortgages) and cars (auto loans). For credit cards, your credit score will help set the limit of your card.
The account standing
Credit will often review your credit score to determine the risk your represent currently. As your score can change over time, lenders want to know the new risk you represent. Using this they determine to raise or lower your limits and interest rates.
Be aware of all these uses because they all can effect your financial well being.
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