Many Consumers Don't Understand Purpose of Their Credit Score

According to a survey conducted by the Consumer Federation of America and Fair Isaac Corporation, almost half of consumers do not understand the purpose of their own credit score.

The basic function of a credit score allows creditors to extend or deny a line of credit to a consumer based on previous lending history. It is used to measure the risk of extending a loan to someone, using measures such as the FICO score developed by Fair Isaac. Based on your financial history, your FICO score can range from 300 to 850; the average score is 723, according to Bankrate.com.

To compile your FICO score, 22 points of data are compiled from three major agencies: TransUnion, Experian and Equifax. Your score can be broken down even further into percentages: 35% for payment history, 15% for length of credit history, 10% for new credit, 10% for types of credit used and 30% for debt.

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