Understanding credit scores is essential for managing personal finances effectively. A credit score is a numerical representation of an individual's creditworthiness and is used by lenders to evaluate the likelihood of a borrower repaying their debts. The most commonly used credit scoring model is FICO, which ranges from 300 to 850. A higher score indicates lower credit risk, while a lower score suggests higher risk.

Factors that influence credit scores include payment history, credit utilization, length of credit history, types of credit used, and new credit accounts. For example, consistently making on-time payments and keeping credit card balances low can positively impact a credit score.

Understanding the impact of credit scores is crucial when applying for loans, mortgages, or credit cards. A good credit score can result in lower interest rates and better loan terms, potentially saving thousands of dollars over time.

References:

• Experian - "What's in your credit score"
• Equifax - "Understanding credit scores"
• TransUnion - "Credit score basics"