Summaries:
Credit scores are calculated using information from your credit reports.
Credit scores generally range from 300 to 850.
Different lenders have different criteria when it comes to granting credit.
It’s an age-old question we get, and answering it requires that we start with the basics: What is a credit score, anyway?
Generally speaking, a credit score is a three-digit number ranging from 300 to 850. Credit scores are calculated using information from your credit report, including your payment history; the amount of debt you have; and the length of your credit history.
There are many different scoring models, and some use other data to calculate credit scores. Credit scores are used by potential lenders and creditors, such as banks, credit card companies or car dealers, as one factor in deciding whether to offer you credit, such as a loan or a credit card. It is one factor among many to help them determine how likely you are to repay the money they lend.
It is important to remember that everyone’s financial and credit situation is different, and there is no “magic number” that can guarantee better rates and loan terms.
Although ranges vary by credit scoring model, generally credit scores of 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and above are considered excellent. Higher credit scores mean you have demonstrated responsible credit behavior in the past, which can make potential lenders and creditors more confident in evaluating a credit application.
Lenders generally view those with credit scores of 670 or higher as acceptable or lower risk borrowers. Those with credit scores of 580 to 669 are generally viewed as “high risk borrowers,” meaning they may have a harder time qualifying for better loan terms. Those with lower scores, below 580, generally fall into the “poor” credit range and may have difficulty obtaining credit or qualifying for better loan terms.
Different lenders have different criteria when it comes to granting credit, which may include information such as your income or other factors. That means the credit scores they accept may vary based on those criteria.
Credit scores may differ among the three major credit bureaus (Equifax, Experian and TransUnion) because not all creditors and lenders report to all three. Many creditors report to all three, but you may have an account with a creditor that only reports to one, two or none. In addition, there are many different scoring models available, and those scoring models may differ depending on the type of loan and lenders’ preference for certain criteria.
What factors affect your credit score?
Here are some tried and true behaviors to keep in mind as you begin to establish, or maintain, responsible credit behaviors:
Pay your bills on time, every time. This doesn’t just include credit cards: late or missed payments on other accounts, such as cell phones, can be reported to the credit bureaus, which can affect your credit scores. If you are having trouble paying a bill, contact your lender immediately. Don’t skip payments, even if you are disputing a bill.
Pay off your debts as quickly as you can.
Keep your credit card balance well below the limit. A higher balance compared to your credit limit can affect your credit score.
Apply for credit in moderation. Applying for several credit accounts within a short period of time can affect your credit score.
Check your credit reports regularly. Request a free copy of your credit report and check it to make sure your personal information is correct and that there is no inaccurate or incomplete account information. You are entitled to one free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com. By requesting a copy of one every four months, you can monitor your reports throughout the year. Remember: checking your own credit report or credit score will not affect your credit scores.
