Credit Scores
Why Do Credit Scores Matter?
Your credit score is a number, going up to 850, that is meant to help lenders decide whether to loan you money.
If you have a low score, lenders consider it riskier to give you a loan because there is a greater chance you may not pay it back. People with low scores generally have a harder time getting approved for loans and may be subject to less favorable loan terms.
If you have a high score, lenders are generally more willing to loan you money, and give you more favorable terms, because they have more confidence that you will meet your loan repayment obligations.
What Do Credit Scores Mean?
Lower credit score = Higher risk to banks = Harder to get approved
If your score is not in the Very Good or Exceptional range, improve your score before opening travel cards.
You might not think of credit cards as loans, but when you put spending on a credit card, you are borrowing that money from the bank until you pay it off at the end of the month. Banks want to have confidence that you will pay back the money you charge to your card, so before they will approve you for a card they will run a check of your credit report.
There are a number of factors card issuers take into account when approving you for a card, including your credit history. You'll only get approved for many of the best travel cards if you have a score in the Very Good or Exceptional range.
Where Do Credit Scores Come From?
Credit reports compile your lines of credit — such as credit cards, mortgage, and auto loans — and your payment history on those accounts. These reports are issued by the three credit rating bureaus: Experian, Equifax, and TransUnion.
Credit rating agencies, such as FICO, assign you a credit score based on the information in your credit report.
Lesson Summary
Your credit score (up to 850) tells lenders how risky it is to loan you money. A higher score means better approval odds and better terms. To get approved for the best travel credit cards, you generally need a score in the Very Good (740+) or Exceptional (800+) range.
Credit scores are based on your credit report — a record of your credit cards, loans, and payment history compiled by Experian, Equifax, and TransUnion. Agencies like FICO use that report to calculate your score.
If your score isn't there yet, don't worry — the next few lessons will cover exactly how scores are calculated and how to build yours up.
