Your credit score determines your borrowing power – do you know yours?
What is a credit score?
Your credit score is a three-digit numerical representation of your credit report that falls between 300 and 850.
It is calculated by credit bureaus that include the “big three”: Equifax, Experian and TransUnion. Each credit-scoring bureau uses different criteria for measuring your credit score, weighing your history against a proprietary algorithm.
“The higher your credit score is, the better position you’re in to get approval for financial products with low interest rates and flexible terms.”
In 2014, the Consumer Financial Protection Bureau pushed for top credit card companies to show consumers their credit score free of charge. Since then, many on the main credit card issuers have obliged, letting customers see their score either on a monthly statement or online.
While many of the lenders only allows its customers to view their credit score, Discover and Capital One allows everyone — customer or not — to access their credit score.
Why is my credit score important?
Lenders and credit providers use both your credit score and the information in your credit report to make decisions about whether you’re a reliable borrower for credit cards, personal loans, a mortgage or auto loans — plus the rates you’ll receive. On top of that, it can also determine how much you’ll pay for car insurance and rent.
Knowing your credit score can tell you where you fall in the credit range, from poor to excellent credit, and how your overall financial health is viewed by potential lenders.
How is my credit score calculated?
You have a few different types of credit scores and each one is calculated differently depending on the credit reporting agency. In general, each of the factors below are what credit bureaus use to calculate your overall credit score.
Your personal information. Your age, how long you’ve been employed and the time you’ve been at your current address can each affect your score.
The age of your credit report. A credit report that’s been active a long time can improve your score.
Your payment history. Whether you’ve paid past and current credit accounts on time is a major factor in your overall score.
Your credit utilization ratio. Experts advise carrying a balance with a utilization of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300, which is 30% of your limit.
Type of credit providers. For instance, holding an account with a bank carries a different level of risk than a store finance provider.
The number of listed credit inquiries. Frequent applications for credit raise your risk index and lower your credit score.
Liens and other judgments. An indicator of increased risk, civil judgments can decrease your credit score.
Not taking the time to monitor each credit report for inaccuracies at least once a year.
Making too many credit inquires at once.
What are the different credit score models?
Lenders and even the bureaus weigh the information in your credit history differently, but they’ve widely adopted two scores: FICO Score and VantageScore.
Both weigh the same factors when determining your credit score, including how long you’ve had credit, your payment history, your credit utilization rate and how many loan and other types of credit you carry.
What are the ranges of different credit score models?
Here’s a list of credit score ranges for the scoring models you may come across.
FICO Score: 300 -850
VantageScore 3.0: 300-850
Score from Experian: 300-850
Score from Equifax: 280-850
Score from TransUnion: 300-850
Experian PLUS score: 330-830
What’s a good FICO credit score?
Today, FICO Scores are used in 90% of credit decisions, which makes it a good barometer of how potential lenders might see you when determining approval.
FICO score range
579 and below
Scoring systems will vary depending on where you’re getting your score from. However, they’re all similar in that the higher the credit score, the better your chances are at being approved for a loan.
What do different credit scores mean?
Each credit-scoring model (FICO and VantageScore being the most widely used) has different criteria for measuring scores. Here’s how applicants with different scores are viewed by credit issuers.
How a lender sees your credit score
You’re more likely than the average American to maintain healthy credit, and it’s unlikely you’ll incur an adverse event in the next 12 months.
You’re less likely to declare bankruptcy, miss a payment on a debt or have a judgment against you, indicating less likelihood of a default.
You’re likely to incur an adverse event such as a default, bankruptcy or something similar in the next year.
You’re highly likely have adverse events listed on your credit report within the coming year, including court judgments, bankruptcies, insolvency or defaults.
579 or lower
600 or lower
Your credit score calculates your level of risk as a borrower based on your past behavior. It’s not a guarantee that an adverse event won’t occur but simply an indication that Equifax considers it unlikely.
What’s the difference between your credit score and your credit report?
Your credit report is a detailed record of your borrowing history, while your credit score is a numerical representation of your creditworthiness based off of your credit report.
On your credit report is list of the applications you’ve made for different forms of credit (whether they’ve been approved or not); your repayment history; details of any defaults you may have; and information about the consumer and commercial accounts you hold.
It also contains personal information including your name and age as well as data held on public record, such as bankruptcies. Your credit score is calculated by credit bureaus using the information on your credit file. The higher your credit score, the lower your risk as a borrower.
Questions you’ve asked us about credit scores
Not if you go through a credit bureau or agency such as myFICO. Your credit file will be accessed by the bureau or authorized agency and your score will be delivered directly to you.
You can order a free copy of your credit report once every 12 months or if you have been denied credit in the past 90 days. Your free credit file is instantaneously downloaded if you access it online. You can also pay a fee to have your credit file arrive sooner or if you are not eligible for a free credit file.
No. You should use your credit card regularly to show you can responsibly manage a line of credit, but at the end of each billing cycle you should pay the balance in full to avoid extra interest charges.
No. Some people think that once you get married you have a joint score with your spouse — this is a common credit myth.
Adrienne Fuller is the head of publishing at Finder. With a decade of experience creating guides in finance and education, she aims to deliver the accurate and transparent information she wishes she had when she made some of life's important financial decisions. For the past 3 years she has been the publisher of money transfers, helping readers save when they send money all over the globe. She has a BA from Colorado College and loves to hike with her two Catahoula dogs around her home in San Diego.
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