What Is a Credit Score?
Let me explain directly: a credit score is a three-digit number that rates your creditworthiness and your ability to get a loan, mortgage, or credit card. It's based on your credit history, including your active accounts, total debt, and how you've repaid debts in the past.
The Fair Isaac Corp., which we now call FICO, developed this model. The FICO Score is the one most lenders use, and it ranges from 300 to 850.
Key Takeaways
You need to know that lenders rely on credit scores to judge if you can repay loans. The three main U.S. credit bureaus are Equifax, Experian, and TransUnion. Under federal law, you can get a free copy of your credit report from each bureau every year.
Fast Fact
Your credit score can affect more than just loans—it might determine the deposit you need for a smartphone, cable, utilities, or renting an apartment. Even potential employers could check it before offering you a job.
How Credit Scores Work
Understand this: your credit score has a big impact on your finances. It influences whether a lender will give you credit. With a higher score, you're more likely to get approved and secure better interest rates, saving you money over time.
On the flip side, a score of 700 or above is generally seen as positive, potentially leading to lower rates. Scores over 800 are excellent. Each lender sets their own standards, but here are the general categories: Excellent is 800–850, Very Good is 740–799, Good is 670–739, Fair is 580–669, and Poor is 300–579.
How Your Credit Score Is Calculated
The three major credit bureaus—Equifax, Experian, and TransUnion—handle your credit history, updating and storing it. There might be slight differences in what they have, but five key factors go into your score: payment history at 35%, amounts owed at 30%, length of credit history at 15%, types of credit at 10%, and new credit at 10%.
Payment history looks at if you've paid on time, including any late payments and how late they were. Amounts owed is your credit utilization—how much credit you're using versus what's available. A longer credit history is less risky because there's more data. Having a mix of credit types, like installment loans and credit cards, shows you can handle variety. New credit can signal desperation if you apply too much, hurting your score.
If you have unused credit cards, don't close them—that can lower your score. Instead, keep them safe, check them online regularly, ensure no balances or autopays, set alerts, and monitor for fraud every six months or so.
VantageScore
VantageScore is an alternative to FICO, developed by the three credit bureaus themselves. FICO gives you a separate score per bureau based only on that bureau's data, so you end up with three slightly different scores. VantageScore combines data from all three into one single score that each bureau uses the same way.
Fast Fact
FICO is the most popular, used by about 90% of lenders.
How to Improve Your Credit Score
Your score updates with new info on your report, so it can go up or down. To improve it, pay bills on time—six months of that can make a real difference. Ask for a credit line increase on cards if your account is in good standing, but don't spend it to keep utilization low, and pay down debt.
Avoid closing unused cards, as that can hurt your score depending on the card's age and limit. Consider a credit repair company if you're short on time—they negotiate for you for a fee. Check your credit report for errors; you're entitled to one free per bureau yearly via AnnualCreditReport.com, or use a monitoring service.
What Is a Good Credit Score to Have?
Lenders decide what 'good' means, but generally, 580–669 is fair, 670–739 is good, 740–799 is very good, and 800+ is excellent.
Who Calculates Credit Scores?
The three bureaus—Equifax, Experian, TransUnion—collect and analyze your info, each calculating FICO scores slightly differently from the same data.
How Can I Raise My Credit Score Quickly?
For a quick boost, enroll in services like Experian Boost that add rent and utility payments to your score if you've paid them well.
The Bottom Line
Your credit score is a key number in your financial world. A good one gets you loans with better terms and saves money. Know what it is and how it's calculated so you can work on improving it.
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