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What is a Credit Score?

Written by
Dulamsuren Bayaraa
Published on
April 28, 2022
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If you’re wondering what a credit score is, why yours might be low (or high), and how it affects your chances of getting a loan you’re not alone. Whether you're planning to apply for a loan, buy a home, or simply take control of your finances, understanding your credit score is the first step.

In this guide, we’ll walk you through everything you need to know in plain language, with tips you can use right away.

What is a credit score?

A credit score is a number that represents your creditworthiness in simple terms, how likely you are to repay money that you borrow. It’s based on your past financial behavior and helps banks and lenders decide whether to give you a loan, a credit card, or other forms of credit.

The score is usually three digits (for example, 300–850), with higher scores meaning lower risk for lenders.

Credit scoring models usually assess several parameters such as repayment history, outstanding loans, loan durations, credit mix, the ratio of debt to income, etc. Therefore, it is critical to be aware of how to manage and shape your credit score.

What is a good credit score?

Generally, credit score ranges:

  • From 580 to 669 are considered fair
  • From 670 to 739 are considered good
  • From 740 to 799 are considered very good
  • From 800 and up are considered “exceptional”

A person with a lower credit score will be considered a high risk of default, therefore, lenders will either reject their loan request or grant them loans with a higher interest rate. Therefore, a healthy credit score is required to enjoy a hassle-free credit experience, whereas a low credit score can lead to difficulties in securing a loan.

How Is a Credit Score Calculated?

Credit scores are calculated using several key factors:

  • Payment History (35%) – Do you pay your bills and loans on time?
  • Credit Utilization (30%) – How much of your credit limit are you using?
  • Length of Credit History (15%) – How long have you had credit or loans?
  • Types of Credit (10%) – Do you have a mix of credit (loans, cards, etc.)?
  • New Credit Inquiries (10%) – Have you applied for many new loans recently?

Each country or credit bureau might weigh these slightly differently, but the logic is the same — it’s about risk and reliability.

Why Does Your Credit Score Matter?

Your credit score affects more than just loan approvals. It can impact:

  • Loan and credit card approvals
  • Interest rates (lower score = higher interest)
  • Approval for phone plans, rentals, or utilities
  • Your ability to grow your business (for entrepreneurs)

Having a high credit score means more trust, better deals, and faster approvals. A low score can make it harder to access financial services.

Common Myths About Credit Scores

“Checking my own score will lower it.”
✅ False. Checking your own score is called a “soft inquiry” and won’t hurt your score.

“You need to be rich to have a good credit score.”
✅ Not true. It’s about how you manage your credit, not how much you earn.

“Paying off debt instantly improves your score.”
✅ Sometimes yes, but consistent payment history is even more important.

“Cash-only people don’t need credit scores.”
✅ Unfortunately, no credit history = no score = hard to get approved when you do need a loan.

Tips for a better credit score:

A good credit score can be achieved over time based on good financial discipline and credit behavior.  

Here are some tips for earning a better credit score:

  1. Pay all bills on time — even the minimum payment
  2. Use only part of your credit limit (aim for under 30%)
  3. Avoid applying for too many new loans at once
  4. Keep older credit accounts open
  5. Clear up any outstanding debts or collections
  6. Monitor your score regularly and dispute errors

A good score won’t happen overnight, but it will grow if you build good financial habits.

Using Your Score to Make Smarter Financial Decisions

Your credit score is a tool to help you make better financial choices.

With a good score, you can:

  • Borrow at lower interest rates
  • Access higher loan amounts
  • Get faster approvals
  • Grow your business or invest in your future

Make it a habit to check your score, understand it, and use it as a guide to grow financially — whether you’re applying for a loan, buying a house, or just building a stable future.

📌If you are interested to use our credit scoring solution for your business, click here to get more info about our solution.

Dulamsuren Bayaraa

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