Understanding Your Credit Score
A closer look.
Our two cents
Our two cents
The three main credit reporting agencies—Experian, Equifax and TransUnion—are required to provide you with a free copy of your credit report once a year. To stay up to date, request a free report from one of these agencies every four months on a rotating basis and check your report for accuracy. Just go to AnnualCreditReport.com for more information.
Whenever—wherever—you're trying to get credit, your credit score plays a part. Trying to rent an apartment? Your landlord may well check your credit score. Need a car loan? Your dealer or bank will check your credit score. Buying a house? Your mortgage interest rate will be affected by your credit score.
With so much resting on your credit score, you can’t afford to ignore it. Here are some basics to help you understand what to look for and why.
What is a credit score?
Your credit score is a number that helps lenders determine how likely you are to make your payments on time. It really is a summary of your credit risk, based on information from a variety of sources such as credit card companies you deal with, banks where you have loans—almost anyone who has issued you credit.
There are several agencies that create credit scores, but the most widely used are FICO® scores created by Fair Isaac Corporation.
FICO® scores can range from 300 to 850—the higher, the better. The median score is around 725, but a score of 760 or higher typically gets you the best deal on interest rates.
Understanding your FICO® score
- Score
- Evaluation
- What it means
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Score800+EvaluationExceptionalWhat it meansYour score is well above the national average, and you will most likely have no problem getting credit.
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Score740–799EvaluationVery GoodWhat it meansYour score is above the national average and demonstrates to lenders that you are an exceptional borrower.
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Score670–739EvaluationGoodWhat it meansYour score is average to above average and demonstrates that you are a dependable borrower.
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Score580–669EvaluationFairWhat it meansYour score is below average. Some lenders might approve loans with this score.
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Score579 and lowerEvaluationPoorWhat it meansYour score is well below average and demonstrates that you are a risky borrower.
Source: myfico.com
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How to boost your score
Here are five things you can do to improve your credit score:
- Pay your bills on time. Your payment history accounts for about 35 percent of your score.
- Increase the length of your credit history. This accounts for about 15 percent of your score.
- Keep your credit card balances low. Ideally, you should keep the amount you borrow below 25 percent of your available credit limit. This accounts for about 30 percent of your credit score.
- Minimize the frequency of new card requests. This accounts for 10 percent of your score.
- Keep a combination of different types of installment debt (such as car loans and mortgages) and revolving debt (like credit cards). This makes up the remaining 10 percent of your score.
How your credit score is determined
Different credit scores like FICO or VantageScore use slightly different methods to calculate your score. But in general your score is based on five factors—here are recent FICO weightings:
• Your payment history (35%)
• How much you owe (30%)
• How long you've been using credit (15%)
• Number of new credit accounts and applications (10%)
• Types of credit you use (10%)
Your credit score goes a long way.
Your credit score goes a long way.Having a good credit score is the key to getting a car loan, mortgage, or other funding. You can request a copy of your credit report from credit agencies for free once a year to check your own history. If your report includes negative entries that are more than 7–10 years old, ask the credit reporting agencies to remove them.
Keep learning
Keep learningFind out more about the importance of a good credit score and how you can prevent identity theft from lowering your score.
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