Your credit score is a snapshot of how well you can repay debt.
Think of a credit score like a report card. Instead of grading you on math or history, your credit score is your grade on how well you repay borrowed money. Credit ratings reflect your debt repayment history, how much debt you owe and other things related to borrowing money.
When people say “credit score,” they’re probably talking about the FICO model, which is the most popular credit-scoring model in the US. Your credit score ranges between 300 and 850, and a higher number is better.
If you miss payments on your mortgage and have debt in collections, your credit score can go down. But if you pay all your bills on time and keep your credit card debt low, your credit score can go up.
I’m being very general here, and there is more to credit scores, but you get the idea. Manage your debt well, and your credit score is likely to increase over time.
Now that we’ve covered the basics, let’s get into a little more detail on credit scores and credit reports.
If your rating is at least 700, you’re in a good spot. A score around that number means you’re likely to qualify for loans with a variety of lenders — if you meet other requirements, that is.
If your credit score is in the 800s, congratulations, because that’s considered excellent credit.
Just like report cards, you can get a bad “grade” on your credit score. The exact number considered a poor or bad credit score depends on who you ask. FICO considers scores under 580 as poor, while many lenders have a 620 to 650 cutoff for loan qualifications.
Credit history is tracked with your credit reports— not to be confused with credit scores.
Your credit score is generated by the information on your credit report. Your credit report tracks your open lines of credit, like your credit cards, mortgage payments, auto loans and so on. Credit reports do not track your banking history — that’s on a different report.
There are three main credit bureaus that lenders use to pull your reports: Experian, TransUnion and Equifax.
The best thing you can do to improve your credit score is to make your payments on time — payment history is the biggest factor in your credit score, making up 35% of it.
But another step in improving your credit score is knowing where you stand.
You can check your credit reports for free at the government site AnnualCreditReport.com. You can check your credit score in various ways, but you can go right to the source at myFICO or visit the credit bureaus’ sites.
After reviewing your reports and scores, you can see if you have any mistakes that need correcting, accounts in collections, missed payments that need to fall off or other ways your history may be lacking.
You can now build credit without a credit card. Debit cards that build credit let you build credit with everyday purchases. Compare a few of the most popular options below.
Mine debit card (formerly Fizz)
Step Visa Card
Current Credit Building Card
Credit scores can sound complicated, and there are certainly a lot of myths surrounding credit scores. But at the end of the day, if you pay your bills on time, keep credit card debt low, avoid debt in collections, avoid repossessions and defaults and don’t need to file for bankruptcy, your credit score is probably in good hands.
The best thing you can do to improve your credit score is maintain an on-time payment history — this category makes up 35% of your entire rating. Keep that in check, and you’re nearly halfway there to a good credit rating.
Learn more about building credit.
A credit card is a revolving line of credit that you can use, pay off and use again. Here’s how it works.
See step-by-step information to freeze your credit report with each of the three major credit bureaus: Equifax, Experian and TransUnion.
Learn the difference between hard credit inquiries and soft credit inquiries.
These rent and utility reporting services report rent and bill payments to credit bureaus to help you build credit without a credit card.
A charge-off means that a creditor has closed an account, but the debt isn’t gone. See how this can negatively affect your credit score.
Applying for a new card can lower your credit score by a few points but could help your credit mix and utilization.
It is possible to remove account collections from your credit report, but building your credit back up could take some time.
Experian, Equifax and TransUnion are the three major credit bureaus, or credit reporting agencies. See how they work in this guide.
A bad credit score typically falls below 670, but there are ways to improve a bad or poor credit score. Learn more in this guide.
A good credit score falls in the 670 to 749 range. A credit score of 750 and above is considered very good or excellent.