To people who are not familiar with the term credit score, they often assume that this is the score that we get in our credit cards for the number of purchases that we have made every year. Nothing is further from the truth. Credit scores are actually the grade that you get depending on how reliable a person is in paying their debts and credits. It is actually a number that is given to indicate an individuals financial responsibility.

Credit scores are determined by a lot of factors, how much your outstanding debts are, how regular you pay for it, how much you spend and how much you earn. It will also be determined by your past credits and how you were as a borrower. These are all being gathered and recorded by credit bureaus and credit reference agencies like Equifax, TransUnion and Experian which are the three major agencies.

So if you think, you are the only one who knows that you owe a credit card company a big amount, think again because they do keep records and what is more, all the credit transactions that we get are being filed for future reference of every credit and financial institution in the country.

Credit scores are important because it can mean being accepted or rejected for a loan. With a really bad credit score, you may not be able to get a house loan, a car loan, a school loan and even a credit card. In short, with a bad credit history, your days of borrowing money is history. In addition, it is not only credit card companies, lending companies and banks that get information from the credit scoring companies.

Private companies and government agencies use this information as part of the background check for a current employee or a potential employee. A credit score will determine a person's financial savvy and sense of responsibility. This will also show just how much a person is willing to live up to a financial problem instead of running away from it. This is especially true with employees that are being hired or were hired to assume posts that deal with really sensitive financial issues or those who are directly in contact with money. A credit history and a credit score is important in determining if they will be able to handle financial information well and in a secure manner.

Mobile phone companies and credit card companies also use credit scores to determine the clients that they should target. People who have good credit scores are often those who have the spending power and pay on time. Thus, they are good people to offer mobile phone packages and credit card services. Electric companies, insurance companies and water companies are just a few of the additional services that check credit scores prior to setting up an account. Larger security deposits are often necessary with low credit scores.

In securing a loan, credit scores are also used in determining the kind of loan that will fit your credit profile. People who have high credit scores are given higher amounts, lower interest and a longer time frame in which to pay for the loan. In contrast, people who do not have a good credit score may be refused a loan or, at the very least, be given a small amount in loan, much higher interest and a shorter time frame to pay the loan. This is because credit card companies and lenders also want to protect their risk. Low credit scores are more riskier and, therefore, warrant higher interest rates.

In today's world, it is important for consumers to keep and eye on their credit history and credit scores. Steps should be taken to increase credit scores whenever it is possible to do.