What is a credit score? A credit score is a three-digit number, usually from 300 to 850, that shows lenders how likely you are to repay borrowed money. It is calculated from the information in your credit reports. The most widely used model, FICO, is based on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). A higher score can get you approved more easily and at lower interest rates on loans and credit cards.
Key takeaways
- Most credit scores range from 300 to 850.
- Paying on time is the single most important factor.
- Keeping card balances low compared with your limits helps your score quickly.
- You have several scores, not just one, because models and bureaus differ.
- Checking your own score does not hurt it.
Table of contents
Credit Score Ranges
| FICO score | Rating | What it usually means |
|---|---|---|
| 800-850 | Exceptional | Best rates and easy approvals |
| 740-799 | Very good | Better-than-average rates |
| 670-739 | Good | Considered acceptable by most lenders |
| 580-669 | Fair | Approval possible, often at higher rates |
| 300-579 | Poor | Harder to get approved; secured options may help |
The 5 Factors That Make Up Your Score
1. Payment history (about 35%)
Whether you pay your bills on time. Late payments, collections, and bankruptcies hurt the most. Most negative items can stay on your report for about seven years, and some bankruptcies for up to ten.
2. Amounts owed (about 30%)
How much you owe compared with your available credit, known as credit utilization. For example, a $3,000 balance on a $10,000 limit is 30% utilization. Lower is better; many experts suggest staying under 30%, and people with the highest scores often use less than 10%.
3. Length of credit history (about 15%)
How long your accounts have been open, including the age of your oldest account and the average age of all accounts.
4. New credit (about 10%)
How many new accounts and hard inquiries you have recently. Several applications in a short time can lower your score temporarily. Rate shopping for a mortgage, auto, or student loan within a short window is usually treated as a single inquiry.
5. Credit mix (about 10%)
Having different types of credit, such as credit cards (revolving) and installment loans (like a car loan), can help slightly. You don't need to take on debt just to improve your mix.
Credit Reports vs Credit Scores
- Credit report: a detailed record of your credit accounts, balances, payment history, and inquiries, kept by the three major U.S. credit bureaus: Equifax, Experian, and TransUnion.
- Credit score: a number calculated from that report using a scoring model.
You can get free credit reports from all three bureaus at AnnualCreditReport.com. Review them for errors, such as accounts you don't recognize or late payments that aren't yours, and dispute mistakes with the bureau.
FICO vs VantageScore
FICO and VantageScore are the two main scoring models in the U.S. Both usually use a 300-850 range and look at similar information, but they weigh factors a little differently. That's why the score in your banking app may not match the one a lender sees. Most mortgage and many other lenders use FICO scores, while many free apps show VantageScore.
Why Your Credit Score Matters
- Loan and card approvals and the interest rate you're offered.
- Renting a home: many landlords check credit.
- Insurance premiums: in most states, insurers can use credit-based insurance scores.
- Utilities and phone plans: a low score may mean a security deposit.
A better score can save you thousands of dollars in interest. See how to get a personal loan with low interest.
How to Improve Your Score
- Pay every bill on time; set up autopay for at least the minimum.
- Lower your credit card balances, or pay before the statement date so a lower balance is reported.
- Keep old accounts open if they don't cost you an annual fee.
- Apply for new credit only when needed.
- Dispute errors on your credit reports.
- Start with a secured or student card if you have no history. See how to choose the right credit card.
For a step-by-step plan, read how to improve your credit score before applying for a loan.
Common Myths
- "Checking my score lowers it." False. Checking your own score is a soft inquiry.
- "I need to carry a balance to build credit." False. Paying in full every month is best.
- "Income affects my score." False. Income isn't part of your credit score, though lenders consider it separately.
- "Closing cards always helps." Not necessarily. It can raise utilization and shorten your history.
Frequently Asked Questions
What is a good credit score?
On the FICO scale, 670 to 739 is generally considered good, 740 to 799 very good, and 800 or above exceptional.
How is a credit score calculated?
FICO scores are based on payment history (about 35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
Does checking my credit score lower it?
No. Checking your own score or report is a soft inquiry and does not affect your score. Hard inquiries from credit applications can lower it slightly for a short time.
Why do I have different credit scores?
Different scoring models (like FICO and VantageScore), versions, and credit bureaus can produce different numbers because they use slightly different data and formulas.
How long does it take to improve a credit score?
Lowering credit card balances can improve your score within one or two billing cycles. Recovering from late payments or collections takes longer, often months to years of on-time payments.
Conclusion
Your credit score is a snapshot of how you manage borrowed money. Paying on time and keeping balances low have the biggest impact, while a long history, few new applications, and a healthy mix of credit help too. Check your reports for free, fix errors, and build good habits, and your score will follow.
This article is for general information only and is not financial advice. Scoring models and lender requirements vary.