What is your credit score?
Learn about your credit score and what you need to know
571
Poor
A credit score is a numerical representation of your creditworthiness. There are multiple models used to calculate your score with FICO and VantageScore being the most popular. Each scoring model takes the information in your credit report and condenses it into a three-digit number ranging from 300 to 850. The three-digit number is used to predict how likely you are to repay the money you borrow.
Credit scores are widely used by financial institutions as an easy way to assess risk. Your credit score can impact almost every aspect of your life from the interest rate on your credit card to what apartment you can rent. The higher your score, the better your chances of approval for credit cards and loans with the best rates and rewards. It’s important to understand your score and the factors contributing to it so you can make informed decisions on what products to apply for or how best to work on your credit.
Learn more about each credit score range below! 👇
Poor credit score 300-579
Borrowers with poor credit either have a lot of negative information on their credit reports such as charge-offs, collection accounts, and judgments or they lack a credit history. The low score marks them as high-risk making it difficult to get an unsecured credit card or be approved for a loan, but it’s not a financial dead end. There are products designed to raise credit scores. Once a credit score hits 500, it is possible to qualify for loans are cards albeit with higher interest rates and additional fees.Â
Fair credit score 580-669
A fair credit score is below average and remains higher-risk but it is no longer in the bad realm. Consumers have less recent negative marks on their reports and as a result, many more lenders are willing to approve their applications. Borrowers will find that while they have more loan and credit card offers, the interest rates and fees are high while rewards are scarce.
Good credit score 670-739
Consumers with good credit may have a few late payments or higher balances on credit cards but in general, they can be counted on to repay debts as agreed. Borrowers will find many more loan and credit card offers with affordable fees but will still need to improve their scores to access the best rates and most lucrative rewards.Â
Very good credit score 740-799
Scores in this range are well above the national average and indicate low risk. Borrowers with very good credit pay their bills on time, keep their utilization low, and are responsible with credit. Consumers with scores in this range are highly likely to be approved for cards and loans with low interest rates and good repayment terms.Â
Exceptional credit score 800-850
Consumers with top scores have extremely high chances of being approved for credit cards and loans with favorable conditions. The majority of borrowers in this range have never missed a payment, keep their credit utilization low, and have old credit accounts. A credit score of 850 is considered “perfect” but once the score hits very good credit, consumers won’t see much of a difference in terms of interest rates, fees, and rewards.
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Credit Score FAQs
Who calculates your credit score?
Your credit score is calculated by the major credit bureaus – Equifax, Experian, and TransUnion. Each bureau collects financial data which they put in your credit report. This data includes your payment history, credit utilization, length of credit history, and more. The bureaus then use a scoring model to analyze the data in your report and calculate your credit score.
There are multiple scoring models but the most widely used ones are FICO (Fair Isaac Corporation) and VantageScore. Each model can produce several different scores by weighing contributing factors differently. For example, there are scoring models specifically for auto loans and others for credit cards.
Additionally, each credit bureau may have slightly different information on file for you, leading to slight variations in your scores across bureaus. That said, the differences in your scores should be negligible.
How is your credit score calculated?
Credit scores are calculated by credit scoring models using information from your credit report.
While the exact algorithms used by credit scoring companies like FICO and VantageScore are not publicly disclosed, we do know the key factors they consider. As FICO is by far the most popular among lenders we will take a closer look at how that one works.
1. Payment history (35% of your score):
Your payment history, including whether you have made payments on time, late payments, or missed payments, is a significant factor in credit score calculations.
2. Credit Utilization (30%):
The amount of credit you are currently using compared to your total available credit is known as credit utilization. Keeping your credit utilization low – below 30% – can positively impact your score.
3. Length of Credit History (15%):
The length of time you’ve had credit accounts, including the age of your oldest and newest accounts, as well as the average age of all your accounts, is considered. Longer credit histories are viewed more favorably because they provide more data on your spending habits and repayment behavior.
4. New Credit (10%):
This includes the number of new accounts you’ve opened, the number of recent inquiries into your credit report, and the time since those inquiries or new accounts. Applying for new credit accounts will slightly lower your score and multiple inquiries within a short period will do more damage. It’s important to be mindful of how frequently you apply for new credit.
5. Credit Mix (10%):
Having a mix of different types of credit accounts, such as credit cards, loans, and mortgages can positively impact your credit score as it shows you can handle various types of credit responsibly. However, this factor has a relatively smaller impact than other factors.
Improving each of these factors can help increase your credit score, leading to better credit opportunities and lower interest rates on loans and credit cards.
It’s important to note that credit scoring models may weigh these factors differently, and the specific calculations can vary between different scoring models. Additionally, lenders may consider additional factors, such as income and employment history, when making credit decisions.
What is a good credit score?
There’s no exact definition for good credit but in general, any FICO score above 670 is considered good. Scores in this are considered to reflect responsible credit management and good financial health. Lenders view individuals with scores in this bracket as acceptable or lower-risk borrowers, often qualifying them for a variety of credit products at competitive interest rates.
FICO divides credit scores into the following ranges:
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
If your score isn’t yet in the good realm, it’s important to improve it. Luckily, it’s not too hard to do and there are plenty of products out there designed to boost your score.