Your credit score is used by the financial industry in deciding whether or not to lend you money and/or what interest rate you are to be charged. It is a secret sauce algorithm that utilizes your past payment history, how much of your available credit you are using, and any defaults, write-offs, judgments, or evictions you have. Every time you apply for credit, the fine print gives the credit company access to virtually all of your financial transactions. If you are unhappy with your score, you can only challenge the raw data the formula uses, but not the formula itself.
A FICO score is a type of credit report that is used by the major credit reporting companies, Equifax, Experian, and Transunion.
In addition to loans and credit cards, your FICO score can be used by anyone who is making a financial decision about you. This includes landlords in deciding whether they will rent to you, the amount of a security deposit, down payments on a house, car loan, utilities, and most significantly, obtaining employment.
FICO scores run from a low of 300 to 850. Anything over 700 is considered good credit. At 800 your mailbox will be flooded with credit card offers. Below 700, landlords and utilities will require higher security deposits, your credit line limited on credit cards, and your interest rate on loans will be higher. Below 600 you will be experiencing more and more outright denials.
Your credit history is being monitored on a daily basis and your score can be lowered from good to bad in a matter of days. Events that can lower your credit quickly and dramatically include missing several payments, and running up even one credit card to the limit. The most disastrous is an unpaid judgment or bankruptcy. Bankruptcy may stop the phone calls, but that mark will remain on your credit report for a minimum of seven years.
With respect to running a card to the limit, the downgrade will be swift, but if you make even one payment that is substantially more than the minimum, your score can rebound just as quickly. The tipping point is to keep your balance less than 35% of your limit.
If you have a string of missed payments, defaults, or canceled cards, only time, making above minimum payments, will heal the damage. That could take several years. Be skeptical of companies that offer a quick fix for bad credit. Look long and hard for what the downsides may be.