You are now leaving our website and entering a third-party website over which we have no control.
Know the ins and outs of your credit score
Key takeaways
- Your credit score shows lenders how reliably you manage credit and repay debts
- Scores typically are based on payment history, amounts owed, credit history length, credit mix, and new credit inquiries
- Check your score regularly using free options, like credit card apps, or paid services, and review annual credit reports for accuracy
Do you know your credit score? Do you know how it’s determined and how you might improve it? And did you know there's more than one type of credit score?
Your credit score is probably one of the most important financial numbers you'll deal with. It can influence loan approvals, interest rates, renting apartments, insurance rates, and more.
Because it is so important, it pays to know all the ins and outs of your credit score. Here’s a guide on what goes into your credit score and how you can improve it, if necessary.
What is your credit score?
A credit score is a number that creditors use to rate your credit history. It's like a grade on your creditworthiness, including how likely you are to make payments on a loan. The score typically is a three-digit number, with many ranging from 300 (poor) to 850 (excellent). It indicates how risky or reliable you are as a borrower. It reflects how you've established credit accounts, borrowed money, and paid it back.
Because that score shows how well you manage credit, lenders use it to help them determine whether they'll lend you money, and how much they'll lend. Your score could also be a factor as to what interest rates you'll be offered, and the length of time the money will be lent (the term).
Where credit info is gathered
Your credit score will typically come from one of the three major U.S. credit bureaus: Equifax®, Experian™, and TransUnion®. Each one compiles credit information from multiple sources, including:
-
Lenders and creditors. Banks, credit card issuers, mortgage companies, auto lenders, and other creditors may report your account activity. Utility or services companies often provide payment information as well
-
Collection agencies. These companies try to collect on outstanding credit accounts that have been transferred to them. They may report outstanding account statuses, amounts, and payments
-
Public records. Sometimes, financial-related legal actions can end up on your credit report. Credit agencies may monitor public court and government records for bankruptcies, foreclosures, repossessions, or tax liens
To get a credit score, credit agencies feed this data into scoring algorithms developed by analytics companies such as FICO® (which has the most widely used scoring system) and VantageScore®. These programs crunch the numbers and calculate your credit score.
Those companies, and others, provide different formulas for determining scores. This helps lenders who might want a score that is more useful for a particular type of loan. That’s why you can have many different credit scores.
Getting a good credit score
Credit scores typically fall within a range, often running from "poor" to "excellent." It's important to have a good credit score, and the higher, the better. The FICO® basic credit score system has five tiers:
300-579: Poor
580-669: Fair
670-739: Good
740-799: Very good
800-850: Excellent
A score in the good range, and above, means better opportunities for you. A lower credit score means it might be more difficult to get approved for loans and credit cards. On the other hand, a very good or excellent credit score offers many benefits. These may include:
-
Lower interest rates on loans and credit cards
-
Easier approval for mortgages and credit cards
-
Higher credit limits and better introductory offers on credit cards
-
Better insurance terms. Insurance companies may check your credit score and adjust their rates accordingly
-
Better chances for getting jobs and apartments. Prospective employers and landlords might use your credit score as they consider applications
How your credit score is calculated
Knowing the ideal score is a great start—but knowing how to get there is even better. Here's five things that impact your FICO® score:
-
Payment history - 35%. Your record of paying bills on time is the biggest factor in this credit score
-
Amounts owed - 30%. This reflects the total amount of debt you have. This category includes your credit utilization, which is the amount of available credit that you use, expressed as a percentage
-
Credit history - 15%. This reflects the length of time that you've had credit, including how long you've had each account
-
Credit mix - 10%. Managing different types of credit responsibly is seen by lenders as a positive sign
-
New credit - 10%. FICO® says research shows that opening several new credit accounts in a short period of time is a sign of risk to lenders
Ways to check your credit score
Because your credit score can have such a big impact on your finances, it’s important to check it regularly. And checking your score will not lower it.
Free ways to check your credit score
-
Credit card company. Your credit card issuer may provide your current credit score for no additional fee. It might even be on your monthly statement
-
Credit score apps. Apps like Credit Karma and CreditWise let you view your score. These apps may also let you view one or more credit reports, track debt and net worth, and monitor account activity
-
Your bank. Some banks offer credit scores as part of having a checking or savings account, some may possibly let you view a credit report as well
-
Websites. myFICO.com offers a no-cost account that will let you view your FICO® score and a single credit report from one bureau
Paid options for checking your credit score
-
myFICO.com offers scores from all three bureaus, along with reports and other features on a subscription basis
-
Experian™ offers a three-bureau credit report and FICO® scores
-
Equifax® offers a three-bureau credit report and VantageScore® scores
-
TransUnion® offers daily score and report viewing subscriptions
-
Annualcreditreport.com connects you with all three bureaus for credit free reports. For an additional fee, they will also provide credit scores
How to decide what to use
For regular monitoring of your score, use free apps like Credit Karma, CreditWise, or free services offered by your bank or credit card. This is a good way to track general credit health and you can keep an eye on your score. If it takes a big drop or rises unexpectedly, you can get a free credit report to find out why.
If you're applying for a loan, consider asking the lender what credit bureau or service they'll be using. Then, if you need to, consider paying for a current FICO® or VantageScore® to get the most accurate picture of your credit.
Don't worry if your score fluctuates a little from month to month. Lenders might report information differently to the credit bureaus and the various factors that go into a score can shift slightly. These things can cause minor changes.
Understanding your credit report
Even if your credit score is where you want or expect it to be, it’s important to check your credit report on a regular basis.
In the United States, you're entitled to one free credit report, every year, from Equifax®, Experian™, and TransUnion®. You can request them all, for free, at annualcreditreport.com. One strategy is to request a report every four months from a different bureau and monitor your credit information year round at no cost.
Once you obtain your report, or reports, closely examine everything. Some details you'll want to inspect:
-
Review and verify personal information. Past addresses, employers, SSN, date of birth, names, phone numbers
-
Review accounts. Make sure all accounts listed are yours, as duplicates can occur. You also might spot fraudulent accounts. Check account opening and closing dates. Also, make sure any "satisfactory" credit accounts aren't missing
-
Check payment history. Verify that your accounts show an accurate payment history, and that there's no erroneous past-due marks
-
Check balances and limits. Each credit account usually shows your monthly payment, current balance, high balance, and credit limit
-
Check account statuses. Make sure any open accounts are noted as open and active. Check the accuracy of any closed or problematic accounts
-
Review credit inquiries. This part of the report might have several subsections. Regular inquiries include the times someone reviewed your report for lending purposes. These ”hard inquiries” may affect your score. Promotional inquiries occur when lenders check your information so they can offer you credit or insurance. These should have no effect on your score. Account review inquiries are usually from companies you're already doing business with, and they update their info on you for account reviews or other business. These inquiries also should have no effect on your score
-
Verify public records. If you've suffered financial legal action, bankruptcies, foreclosures and the like, they may also be listed in your credit report. You should verify that the information is accurate
While reviewing your credit report, make sure the data is correct and file a dispute if you find any errors. The Consumer Financial Protection Bureau provides a guide on how to dispute information.
Give yourself a little credit
Credit scores aren't as mysterious as they might seem. Now that we've pulled back the curtain and you've seen how they work, you can strive to improve your score and keep it in a good place.
Related articles
It’s important to know how to manage your first credit card. Learn more about credit card tips and advice for beginners and new credit holders.
Does applying for a new credit card affect your credit score? Learn more about how applying for a new card can impact your credit.
Learn how to build credit using these strategic tips. A better credit score could enhance your financial opportunities.