A credit score is based on a person's credit history and financial behaviour - it is a numerical representation of their creditworthiness. Lenders, landlords, insurers, and other financial institutions use credit scores to determine the risk of lending money to or conducting business with an individual. Generally speaking, a higher credit score suggests a lower credit risk while a lower score suggests a higher risk.

A FICO score is a type of credit score by data analytics firm Fair Isaac Corporation (FICO). Lenders and creditors frequently use FICO scores to evaluate a person's creditworthiness, determine whether they are eligible for credit, and determine the terms and interest rates that will be offered to them. Numerous lenders across numerous industries use FICO scores. It is one of the most widely used credit scoring models in the United States.

FICO scores are a crucial tool in the credit industry, assisting lenders in making educated choices regarding whether or not to extend credit to customers. You can manage your credit wisely and work toward building a favourable credit profile by being aware of your FICO score and the variables that affect it.

The range that a good credit score typically falls into can be slightly different depending on the credit scoring model that lenders use.

For example, UK credit score agency Equifax use the following range:

Excellent Credit: 811 - 1000

Very Good Credit: 671 -810

Good Credit: 531 -670

Poor Credit: <531

In the United States, where FICO scores are widely used, the range is as follows:

Excellent Credit: 800 or higher

Very good Credit: 740 to 799

Good Credit: 670 to 739

Fair credit: 580 to 669

Poor credit: 580 or less

It's significant to note that lenders and financial institutions may have different definitions of what constitutes "good" credit. For specific loan products or interest rates, some lenders may have stricter credit score requirements, while others may be more lenient. 

Responsible credit management, which entails timely payments, low credit card balances, limiting credit inquiries, and prudent account management, is crucial to maintaining or improving credit scores. To make sure your credit score accurately reflects your credit history, it's also advised to regularly check your credit report for errors and inaccuracies.

A bad credit score typically represents a higher level of credit risk and is in the lower range of credit scores. Depending on the credit scoring model being used, credit scores can vary. In the UK a bad credit score is one below 531. In the US, a bad credit score is typically regarded as being below 580 on the FICO score scale, which ranges from 300 to 850.

While a score below 531 in the UK and 580 in the USA is typically regarded as "poor," there are different levels of credit risk within this range, and lenders may use different standards to determine a borrower's creditworthiness. With lower-than-average "poor" credit scores, some lenders might be willing to work with borrowers, but they might also provide less favourable terms and higher interest rates.

Individuals should concentrate on responsible credit management techniques, such as timely payments, debt reduction, avoiding excessive credit inquiries, and prudent credit account management, to raise their credit scores. Positive credit behaviour can gradually increase creditworthiness and raise a low credit score. It's crucial to regularly check your credit report for mistakes and inaccuracies to guarantee the veracity of your credit history.

Understanding the specific cause of a credit score decline is crucial to taking corrective action and maintaining or enhancing your creditworthiness. Credit scores can drop for a variety of reasons. 

Here are a few typical causes of credit score declines:

Late or missed payment: Your payment history is one of the most important factors affecting your credit score, along with late or missed payments. Your credit score may suffer if you make late or skipped payments on credit accounts like credit cards, loans, or mortgages. Your credit score can be negatively impacted by even one late payment.

High Credit Card Balances: Another important consideration is credit utilisation, which is the ratio of your credit card balances to your credit limits. Low credit scores can be caused by high credit card balances, particularly if they approach or exceed your credit limits.

New Credit Inquiries: A hard credit inquiry is made each time you apply for new credit, which could momentarily lower your score. A greater effect may be felt if there are several credit inquiries made in a short time, especially if they are for various types of credit.

Credit Accounts: Your credit utilisation ratio and the length of your credit history may be impacted by closing credit card accounts or other credit lines. Your credit score might decrease if you close out more established accounts or accounts with a good payment history.

Derogatory Information: Your credit score may suffer greatly if your credit report contains any negative information, such as collections, country court judgements, charge-offs, or bankruptcy.

Errors or Inaccuracies on Your Credit Report: Incorrect information about late payments or accounts that don't belong to you on your credit report can cause an unjustified drop in your credit score. Check your credit reports frequently for errors, and challenge any you find.

Credit Mix: A variety of credit products, such as instalment loans, credit cards, and mortgages, can boost your credit score. Your credit score may decrease if you close accounts that are part of your credit mix or if you don't have a variety of credit products.

Public Records: Your credit score may be significantly impacted negatively by certain public records, such as tax liens, judgments, or foreclosure proceedings.

Financial Difficulties: If you struggle to make payments due to financial difficulties, such as a job loss or unplanned medical expenses, your credit score may suffer as a result of your late payments or account delinquencies.

Credit Age: Your score may be impacted by the length of your credit history. Short credit histories might not be as advantageous as those that have been around for a while.

Credit Mix Change: Your score may be impacted if you make significant changes to your credit mix, such as opening several new credit card accounts quickly.

Consider speaking with a credit counsellor, a financial coach, your bank, or a financial advisor who focuses on credit management if you don't know why your credit score dropped or if you need help repairing your credit. They can offer you advice to assist you in resolving the particular problems affecting your credit score.

You must make a conscious effort to strengthen your creditworthiness if you want to raise your credit score. While it might take some time to notice noticeable improvements, taking the following actions over time can help you raise your credit score:

Check Your Credit Reports:

• At least once a year, use credit report agencies to get copies of your credit reports.
• Check your credit reports for fraud, errors, and other irregularities. Dispute any inconsistencies you discover.

Paying Bills On Time: Pay all of your credit accounts—including credit cards, loans, and mortgages—consistently and on time. Your credit score heavily depends on your payment history.

Reduce Credit Card Debt: Maintain a low balance on your credit cards compared to the available credit. In general, for a positive impact on your score, a credit utilisation ratio (credit card balances divided by credit limits) below 30% is advised.

Avoid Opening Too Many New Accounts: Limit the number of new credit card applications and inquiries you make, especially quickly. Multiple inquiries temporarily lower your score.

Maintain A Mix of Credit Types: Your credit score can be positively impacted by having a variety of credit products, including instalment loans, credit cards, and mortgages. Open new credit accounts, though, only when necessary.

Keep Old Accounts Active: Even if you don't use older credit accounts frequently, you might want to keep them open. Older accounts add to your credit history length, which can raise your score.

Don’t Close Accounts With Positive History: Your average account age can decrease and your credit score could go down if you close accounts with a good payment history.

Set Up Payment Reminders: To make sure you never forget a due date, set up automatic payments or payment reminders. A strong credit history depends on timely payments.

Reduce Debt: Pay down the balances on any high-interest loans or credit cards if you have them. Your credit utilisation and overall creditworthiness can both be enhanced by reducing debt.

Negotiate With Creditors: If you're having trouble making ends meet, think about getting in touch with your creditors to talk about repayment options, such as reduced interest rates, longer payment terms, or hardship programs.

Use Credit Wisely: Avoid using your credit cards excessively or building up a large amount of debt. Utilising credit responsibly is essential to preserving and raising your rating.

Seek Credit Counseling: Consider speaking with a reputable credit counselling agency if you're having trouble managing your credit. They can offer advice and aid in the development of a debt management strategy.

Be Patient and Persistent: It takes time to raise your credit score. Your credit score will gradually increase if you continue to maintain good credit practices.

Regularly Monitor Your Credit: Keep an eye out by routinely checking your credit reports and scores. You can access your credit score for free from many credit card companies, or you can use free credit monitoring services to keep tabs on changes.

Avoid Bankruptcy or Collections: If at all possible, try to stay away from bankruptcy and collection activity as both can severely harm your credit.

Keep in mind that raising your credit score is a gradual process, and you might not notice any real changes for several months or even years. Your creditworthiness will gradually increase if you are tenacious in your efforts to maintain responsible credit behaviour.

Your ability to borrow money and the terms you're given when applying for credit or loans are both significantly influenced by your credit score.

Your credit score is used by creditors and lenders to evaluate your creditworthiness and determine the risk of lending to you. 

How your credit score affects borrowing is as follows:

Loan Approval: The likelihood of loan approval rises with a higher credit score. Because borrowers with good or excellent credit scores are viewed as having lower credit risks, lenders are more likely to approve their credit applications.

Interest Rates: The interest rates you are given depend on your credit score. Higher credit scores frequently result in lower interest rates, which can lower monthly payments and overall borrowing costs for borrowers. On the other hand, lenders may charge higher interest rates to borrowers with lower credit scores, making loans more expensive.

Credit Limits: A higher credit score frequently translates to higher credit limits for credit cards and lines of credit. When a person has a good credit history, lenders are more likely to offer them larger credit lines.

Loan Terms: Your credit score may have an impact on the terms of your loans, including the length of the loan (loan term). Better credit scores may open up more flexible loan term options for borrowers.

Loan Approval Speed: For borrowers with high credit scores, lenders may expedite loan approvals, enabling them to get credit more quickly when they need it.

Security Deposits or Collateral: For certain loan types, such as secured credit cards or loans, borrowers with lower credit scores may be required to provide security deposits or collateral.

Insurance Premiums: Your credit score may occasionally have an impact on the premiums you pay for homeowner's insurance and auto insurance. Higher insurance costs may be incurred by those with lower scores.

Rental Approval: When assessing rental applications, landlords frequently look at credit reports. Your chances of getting approved for rental housing can go up if you have good credit.

Opportunities for Employment: Although not directly related to borrowing, some employers perform credit checks as part of the hiring process, especially for jobs requiring security clearances or financial responsibilities. Your job prospects may be impacted by a bad credit history.

Utility Deposits: Customers with poor credit may be required to make larger deposits with utility providers, such as those who provide electricity, gas, or water.

Mortgage Approval: The approval of your mortgage depends heavily on your credit score. Your score is used by mortgage lenders to determine your eligibility for various mortgages as well as the interest rates you'll be offered.

In conclusion, a major factor that creditors and lenders take into account when assessing your credit application is your credit score. As opposed to lower credit scores, which may result in higher costs and fewer borrowing options, higher credit scores may result in more favourable loan terms, lower interest rates, and better borrowing opportunities. To increase your ability to borrow money and access better financial opportunities, it is crucial to actively manage and raise your credit score.

Complex algorithms are used to calculate credit scores, and each credit scoring model's precise formula is confidential and not made available to the public. The fundamental ideas and elements that affect credit scores are, however, well-known. The most popular credit scoring models, like FICO and Vantagescore, take into account several important factors when determining your credit score:

Payment History (35%): One of the most important factors affecting your credit score is payment history. It evaluates your track record of promptly paying off credit accounts, such as credit cards, loans, and mortgages. Your score can suffer from late payments, missed payments, and delinquent accounts.

Credit Utilisation (30%): The percentage of your credit card balances compared to your credit limits is referred to as credit utilisation. Keeping your credit utilization ratio low (typically under 30%) can help your score.

Length of Credit History (15%): Your credit history length takes into account the age of your credit accounts, both on an individual and average basis. Longer credit histories typically benefit your score more.

Types of Credit Account (10%): Credit scoring models take into account the variety of credit accounts you possess, such as credit cards, instalment loans (such as auto loans), and mortgages. Your score may be boosted if you have a variety of credit.

New Credit Inquiries (10%): Every time you apply for a new credit line, a hard credit inquiry is run, which may temporarily lower your credit score. Multiple requests made quickly may indicate a higher risk to lenders.

Public Records and Derogatory Information: Your credit score can be significantly lowered by negative items like bankruptcies, tax liens, judgments, collections, and late payments that have been reported to collections.

These factors are given weights by credit scoring models to determine your credit score. Every factor uniquely affects your score, and different scoring models can use different weightings. Vantage Scores and FICO scores, for instance, have slightly different weightings.

It's crucial to keep in mind that credit scores from the three major credit bureaus (Experian, Equifax, and TransUnion) can differ slightly because they might use slightly different data or scoring models. The aforementioned elements, however, are constant across scoring models.

Additionally, some credit scoring models may use additional data sources to determine creditworthiness, particularly for people with short credit histories, like utility bill payments or rental payment history.

It takes time and responsible management of these factors to raise your credit score. To keep and improve your credit score, you must make on-time payments, lower credit card balances, refrain from making too many credit inquiries, and keep a clean credit history.