What is a credit score and how is it calculated?

A credit score, also called a credit rating, is a three-digit number used by lenders to determine whether you qualify for credit, such as a loan or credit card.

The information in your credit report is used by most credit and service providers as an important contribution to the development of their own credit risk score. This, along with your employment history; your income and affordability assessments as well as the type of credit for which you are applying, may affect the outcome of your credit application.

Your credit score is calculated using a formula that evaluates how well or badly you pay your bills, how much debt you carry and how all of that stacks up against other borrowers. In effect, it tells you in a single number what your credit report says about your management of existing credit.

Generally, the higher your score, the better.

A score of 600+ will give you a fair chance of home loan approval. although this may vary according to which bank you use. A score of 670+ is considered an excellent credit score, significantly boosting your chances of home loan approval. Scores below 600 would be considered high to very high risk. In this case you’ll want to look at ways to clear your credit record.