When you apply for a loan or a mortgage, the first thing the lender does is to check your credit score. Based on your credit score, the lender decides the amount of finance you are eligible for and the interest rate at which you will be charged. So what is this credit score and how does it influence your capacity to take fresh credit?

Your credit score is a number that reflects on the likelihood at which you will pay back a loan. Credit scores generally range between 300 and 800. In general, a score of above 620 is needed to avail of a loan at lower costs. If you have a low credit score, it would indicate high risk and would make it difficult for you to obtain fresh credit at reasonable costs.

So what goes into the calculation of your credit score? Credit scores do not take into consideration your income or how much savings you have. Instead, your credit score is primarily influenced by your current debt level, your credit history and how many times your credit report is pulled up by various agencies.

• A high debt level would lower your scores considerably as it means that you are already financially burdened with many loans and would not have the capacity to take on fresh credit.

• Your credit history would take into consideration your track record at paying past and present dues. Timely payment of such dues would ensure a higher credit score as compared with late payments.

• The more frequently your credit report is pulled up by various agencies, more the points docked off your credit score. However, your checking of your own credit report will not affect your credit score as you are entitled to doing so.