What is a credit score and why is it important?
It’s not just three digits: your credit score indicates how well you manage your debt. It’s designed to represent your credit risk: in other words, an at-a-glance indication of how likely you are to pay your bills on time. It's a pretty important number that lending companies typically use when assessing the amount of money to loan you. A higher credit score generally results in more favorable credit terms, which is a good thing for you.
So what is a good credit score?
Standard credit score range:
- 300-579: Poor—scores in this range are below U.S. consumer averages and indicates a borrower may be a risk.
- 580-669: Fair—scores in this range are below U.S. consumer averages but many lender will issue loans to borrowers with these scores.
- 670-739: Good—scores in this range are near or slightly above U.S. consumer averages and most lenders consider this a good score.
- 740-799: Very Good—scores in this range are above U.S. consumer averages and demonostrates that borrower is very dependable.
- 800-850: Excellent—scores in this range are well above U.S. consumer averages and indicates a borrower is an exceptionally low risk.
What factors go into calculating credit scores?
Many factors are taken into consideration when calculating your credit score, but the most important are payment history and utilization. Combined, these two factors make up 65% of your score. If you make your payments on time, and you use less than 30% of your available revolving credit, you are well on your way to an excellent score.
Common factors that impact your score:
- Your bill payment history
- Your credit limits and how much of those limits you’re using
- How long you’ve had credit
- The types of credit you have (credit cards, auto loans, student loans, mortgages, etc.)
- How much debt you have
- Hard inquiries on your credit report
But also remember: you actually have more than one credit score. Confusing? We know. Credit scored are calculated using your credit report, and there are a few different models institutions use. However, all the scoring models take into consideration the factors listed above and may include additional factors like work history and income.
How do I know what my credit score is?
- Check your credit card or loan statement—some lenders have started providing credit scores for their customers. It may be on your statement or within your online account.
- Purchase credit scores directly from one of the three major credit bureaus or other providers.
- Use a credit score service or free credit scoring site, such as Credit Karma and others.
In addition to checking your credit scores, it’s a good idea to regularly check your credit report to ensure that the information is accurate and complete. You can get a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus—Equifax, Experian and TransUnion—by visiting www.annualcreditreport.com.
Is your credit score not quite where you want it? You're not alone. Let’s dive into some tips to improve your credit score.