Determining Risk

• Creditors are risk averse. They seek borrowers who are low risk instead of those with poor or no credit history. High-risk customers generally have lower credit scores and are less likely to repay their debts on time or at all. Though consumers have access to information compiled by the credit bureaus, the bureaus are primarily a resource for creditors. The credit bureaus offer your credit score to creditors looking for new customers. If you've ever received a credit card solicitation in the mail, it comes from creditors pulling your credit information and using it to create new business.
  
  

Credit Report Clues

• Creditors can determine your level of risk based on your account balances and your payment habits. Frequent occurrences of late payments and high credit utilization ratios means you are a high risk. Credit utilization is the amount you owe on an account relative to the available credit or original loan balance. For example, on a credit card account, owing $500 on a card with a $1,000 limit means you have a credit utilization ratio of 50 percent. Creditors generally seek borrowers with low utilization ratios, as consumers who carry high balances are more likely to incur financial strain when presented with a new credit account.
  
  

Personal Use

• Credit scores are used to determine your interest rates on loans and credit accounts. Before making a major purchase, such as a house or car, you can use your credit score to determine whether you should apply now or wait to get the best rates. Credit scores can be ordered from the three major credit bureaus for a small fee. Scores can be ordered with your credit report or separately. Be sure to order a credit score from each of the three major bureaus--Experian, Equifax and TransUnion--as each bureau calculates credit information differently.
  
  

Considerations

• Your credit score is essential when seeking access to additional financial resources, such as loans or lines of credit. Credit scores are one of multiple factors influencing your ability to obtain new credit. Lenders often combine your credit score with your employment history and salary to determine your eligibility for a loan. Some employers also use your credit score to determine your level of responsibility in managing money and valuables. For example, in the jewelry industry, job applicants with poor credit are less likely to get hired than those with good to excellent credit scores.