Companies that lend other people money, such as credit card or lending companies, make their money off of the interest that they charge when you pay them back. When people borrow money they promise to pay it back in monthly sums. Those monthly sums will eventually add up to the amount that was originally borrowed. However, with the interest added onto the monthly sums the borrower is going to end up paying quite a bit more money back than the original item cost. In a perfect world where everyone could pay their money back on time and in full these companies could charge very low interest rates and still turn a hefty profit.

The world is not perfect. People file for bankruptcy. People don't pay their bills on time or at all. Every time this happens a lending company loses money. This is because they have to put in extra man hours to get that money back. Every time they make one of those harassing phone calls that everyone loves they are spending money. That employee has to dedicate his time in order to get your money back. Large lending companies can spend millions of dollars just in attempts to get their money back.

This is why the credit score was born. Lending companies couldn't afford to do personal background checks on all of their customers in order to assess how much they should charge. A few companies popped up saying that they would give them an objective numerical value that tells companies how responsible they are with borrowed money. This credit score range goes all the way from 1 to 1000. It's very unlikely that you'll either have an 800 or a 1, however.

The credit score range works like this. Every time you make a monthly payment on time and in full your credit score goes up. Every time you miss a payment it goes down. If you file for bankruptcy your credit score is going to drop heavily. If you make multiple hard inquiries for a loan (Actually apply for loans) your score is going to be lowered as well. If you have a credit score of 1 then you are in serious, serious trouble. Numbers 1-500 are considered poor scores. 700-800 is considered to be extremely high with 800 and higher being even better.

Since lending companies use that credit score to determine what your interest rate will be the higher the number of your credit score the better off you're going to be. You'll be able to obtain loans with very low rates and get credit cards that have low rates as well. When people take out money for houses they will end up spending, generally, over twice as much as the house was originally worth. With a good credit score you can literally save hundreds of thousands of dollars with a lower interest rate. Your monthly car payments will be low as will your housing payments.

This is why credit scores are so important. Having a high credit score can save you tons of money. There are a few simple ways that can boost your credit score. Don't expect to boost it by hundreds of points in just a few weeks. It can and does take long periods of time to improve a credit score. However, with a few simple lifestyle changes it will start to improve.

First off cut out any unnecessary payments that you may have. If you have a car that's worth more than you can afford sell it and buy a cheaper car. Having a lower payment will make it so you can pay on time every time. These payments will increase your score.

When applying for loans apply for as many as you can within a short period of time. Every hard inquiry lowers your score by a few points. However, after every inquiry there's a week long or more grace period where further credit inquiries do not affect your score.

With these tips you too can improve your credit score!