A credit score is a numerical representation of your creditworthiness, based on information from your credit report. Credit scores are used by lenders to evaluate your creditworthiness and decide whether to lend you money, and on what terms. Credit scores are typically 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 several different credit scoring models used by different lenders and credit bureaus. The most widely used credit scoring model is the FICO score, which is developed by the Fair Isaac Corporation. FICO scores range from 300 to 850, with higher scores indicating a lower risk of default. Here is a general breakdown of FICO score ranges:
Excellent: 750 and above
Good: 700 to 749
Fair: 650 to 699
Poor: 600 to 649
Very poor: 300 to 599
It's important to note that credit scores are just one factor that lenders consider when evaluating a loan application. Other factors may include your income, debt-to-income ratio, and the type of loan you are seeking.
Things you might want to know about credit scores:
Credit scores are not the same as credit reports. A credit report is a detailed record of your credit history, including information about your credit accounts, payment history, and any derogatory marks (e.g., bankruptcies, foreclosures, late payments). Credit scores, on the other hand, are a summary of this information, presented in the form of a three-digit number.
Credit scores are used for more than just loans. In addition to being used by lenders to evaluate loan applications, credit scores can also be used by landlords, insurance companies, and even employers to assess your creditworthiness.
Credit scores can change over time. Your credit score is not set in stone and can change based on your credit activity. For example, if you miss a payment or max out a credit card, your credit score may go down. On the other hand, if you pay your bills on time and reduce your debt, your credit score may go up.
You can take steps to improve your credit score. If you're unhappy with your credit score, there are things you can do to improve it. These may include paying your bills on time, reducing your debt, and not applying for too much new credit at once. It's also a good idea to review your credit report regularly to make sure it's accurate and to catch any errors that may be hurting your credit score.
What are the credit score ranges?
Here are the general credit score ranges for the FICO scoring model:
- Excellent: 750 and above
- Good: 700 to 749
- Fair: 650 to 699
- Poor: 600 to 649
- Very poor: 300 to 599
It's important to note that these ranges are just a general guide, and different lenders may have their own criteria for evaluating credit scores. Some lenders may consider a score of 750 to be excellent, while others may consider a score of 800 or higher to be excellent. Similarly, some lenders may consider a score of 600 to be poor, while others may consider a score of 650 to be poor.
It's also worth noting that there are other credit scoring models in addition to FICO, and these models may have different score ranges. For example, the VantageScore model, which is developed by the three major credit bureaus (Experian, Equifax, and TransUnion), has a score range of 300 to 850, like FICO, but the specific ranges may differ.
Ultimately, it's important to remember that credit scores are just one factor that lenders consider when evaluating a loan application. Other factors, such as your income, debt-to-income ratio, and the type of loan you are seeking, may also be taken into account.
What is the difference between FICO score and VantageScore?
FICO scores and VantageScores are two different types of credit scores. Both scores are designed to help lenders evaluate the creditworthiness of borrowers, but they use slightly different methods to calculate scores and have different score ranges.
Here are a few key differences between FICO scores and VantageScores:
Method of calculation: FICO scores are developed by the Fair Isaac Corporation and are based on credit information from the three major credit bureaus: Experian, Equifax, and TransUnion. VantageScores are developed by the three major credit bureaus and are also based on credit information from these bureaus. However, the specific algorithms and data sources used to calculate the scores may differ.
Score range: Both FICO scores and VantageScores have a range of 300 to 850, with higher scores indicating a lower risk of default. However, the specific ranges for different credit ratings (e.g., excellent, good, fair, poor) may vary between the two scoring models.
Use by lenders: FICO scores are the most widely used credit scores in the United States, and many lenders use them to evaluate loan applications. VantageScores are also used by some lenders, but they are not as widely used as FICO scores.
Overall, both FICO scores and VantageScores are useful tools for lenders to assess the creditworthiness of borrowers, but they may not always be used in the same way or have the same impact on loan decisions. It's important to keep in mind that credit scores are just one factor that lenders consider when evaluating a loan application, and other factors, such as your income, debt-to-income ratio, and the type of loan you are seeking, may also be taken into account.
What is the average credit score?
The average credit score can vary depending on the specific credit scoring model being used. However, according to data from the credit bureau Experian, the average FICO score in the United States was 711 as of the first quarter of 2021. This is considered to be a good credit score, falling within the range of 700 to 749.
It's worth noting that the average credit score can vary by age, gender, and other demographic factors. For example, younger people may have lower average credit scores because they have less credit history, while older people may have higher average credit scores due to longer credit histories.
It's also important to keep in mind that credit scores are just one factor that lenders consider when evaluating a loan application, and different lenders may have their own criteria for what constitutes a good credit score. Other factors, such as your income, debt-to-income ratio, and the type of loan you are seeking, may also be taken into account.
What factors impact your credit scores?
There are several factors that can impact your credit scores, including:
- Payment history: Payment history is one of the most important factors in determining your credit scores. Late or missed payments can have a negative impact on your scores, while a history of on-time payments can have a positive impact.
- Credit utilization: Credit utilization is a measure of how much of your available credit you are using. High credit utilization (using a large portion of your available credit) can have a negative impact on your credit scores, while low credit utilization (using a small portion of your available credit) can have a positive impact.
- Credit history length: A longer credit history can be beneficial to your credit scores because it shows lenders that you have a track record of managing credit responsibly.
- Credit mix: The mix of credit accounts you have (e.g., credit cards, mortgages, auto loans) can also impact your credit scores. Having a diverse mix of credit accounts may be seen as a positive sign by lenders.
- New credit: Applying for too much new credit at once can have a negative impact on your credit scores. This is because each credit application results in a "hard inquiry," which can temporarily lower your scores.
It's important to keep in mind that these are just some of the factors that can impact your credit scores, and the specific factors that are considered may vary depending on the credit scoring model being used. It's also worth noting that credit scores are just one factor that lenders consider when evaluating a loan application, and other factors, such as your income, debt-to-income ratio, and the type of loan you are seeking, may also be taken into account.
Factors that don’t affect your credit scores
There are a few factors that are generally not considered when calculating credit scores:
- Race, ethnicity, national origin, religion, or gender: Credit scores are based on your credit history and financial behavior, not your personal characteristics.
- Age: Age is not a factor in credit scoring, although your credit history length (which is related to age) may be considered.
- Income: Credit scores are not based on your income or employment status. However, lenders may consider your income and debt-to-income ratio when evaluating a loan application.
- Marital status: Credit scores are not based on your marital status.
- Rent or mortgage payments: Rent or mortgage payments are not typically reported to the credit bureaus and are therefore not considered in credit scoring. However, if you have a mortgage, your mortgage payments will be reflected on your credit report and may be considered by lenders.
It's worth noting that these are just a few of the factors that are generally not considered when calculating credit scores. Credit scoring models may vary in the specific factors they consider, and lenders may have their own criteria for evaluating loan applications.
How to improve your credit?
If you're looking to improve your credit, here are a few steps you can take:
- Pay your bills on time: Payment history is one of the most important factors in determining your credit scores. Paying your bills on time, including credit card bills, mortgage payments, and other loan payments, can help improve your credit scores.
- Keep your credit utilization low: Credit utilization is a measure of how much of your available credit you are using. High credit utilization (using a large portion of your available credit) can have a negative impact on your credit scores. Try to keep your credit utilization low, ideally below 30% of your available credit.
- Don't apply for too much new credit at once: Each time you apply for new credit, it results in a "hard inquiry" on your credit report, which can temporarily lower your credit scores. Avoid applying for too much new credit at once to minimize the number of hard inquiries on your credit report.
- Dispute errors on your credit report: If you find errors on your credit report, it's important to dispute them. Incorrect information on your credit report can negatively impact your credit scores.
- Use credit responsibly: In general, using credit responsibly can help improve your credit scores over time. This may include paying your bills on time, keeping your credit utilization low, and not applying for too much new credit at once.
It's worth noting that improving your credit scores can take time, and there is no quick fix. However, by following these steps and using credit responsibly, you can work to improve your credit over time.
How can I check and monitor my credit?
There are a few ways you can check and monitor your credit:
- Obtain a copy of your credit report: You are entitled to a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once every 12 months. You can request a copy of your credit report online at AnnualCreditReport.com.
- Check your credit score: In addition to your credit report, you can also check your credit score. Some credit card companies and banks offer free credit scores to their customers, or you can purchase a credit score from a credit bureau or a credit monitoring service.
- Monitor your credit activity: It's a good idea to regularly review your credit report and credit score to make sure everything is accurate and to catch any errors or fraudulent activity. You can also sign up for a credit monitoring service, which can alert you to changes in your credit report or credit score.
It's important to keep in mind that your credit report and credit score are not the same thing. Your credit report is a detailed record of your credit history, including information about your credit accounts, payment history, and any derogatory marks (e.g., bankruptcies, foreclosures, late payments). Your credit score, on the other hand, is a numerical representation of your creditworthiness, based on information from your credit report.
By regularly checking and monitoring your credit, you can stay on top of your financial health and make informed decisions about your credit and finances.