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Everything You Need to Know About Credit Scores

Your credit score represents a lifetime of financial decisions and has the power to impact your loan approvals, interest rates, employment, housing, and more. Even though it’s just a 3-digit number, your credit score can be surprisingly difficult to understand. These tips can help you better understand your credit score.

What is a Credit Score?

Here’s a quick credit score 101 – a credit score is used by lenders to measure your ability to repay your loans. But how is your score calculated? Every time you use credit, like with a credit card or a loan, you’re borrowing money. How you pay back that borrowed money is reported to the credit bureaus and recorded on your credit report. Your 3-digit credit score is calculated based on that information on your report. If you’re responsible with your credit, you could have a higher score. If you make missteps, you could have a lower score.
Your credit score can have a long-reaching impact on your life. Companies and industries of all kinds use that number to decide if you’re a financial risk. Having a score below a certain point can lead to you being turned down for credit cards, loans, and even apartments. Because of the massive impact credit scores have on your life, it’s recommended that you check your credit report at least once a year and understand what factors impact your score.

Credit Score vs. Credit Report

Your credit report is a summary of your complete credit history, which is stored at the credit bureaus. It includes things like payment history, what type of accounts you have, how many accounts you have, and how much credit you’re utilizing. Each of these factors can have an impact on your credit score. Checking your credit report regularly will help you stay on top of what’s happening to your credit score and verify that the information is correct.


Your credit score is calculated based on the information in your credit report. It’s important to monitor your score over time. If there’s a dramatic change in your score, you can check your credit report to learn why. Maybe there was a mistake or error that can then be corrected. You may think a small piece of information won’t make a big impact, but everything on your credit report has the potential to impact your credit score.

FICO® Score vs. VantageScore®

The FICO® Score is the most common credit scoring model and will give you a score between 250 and 900. FICO® is the oldest scoring method and is generally seen as the industry standard.


VantageScore® was developed later by the three major credit bureaus (Equifax, Experian, and TransUnion) to compete with the traditional FICO® Score. VantageScore® functions very similarly to FICO® and provides a number between 250 and 900.


Check both scores regularly because they may be slightly different. Since they both have their own scoring model, you may find you have a different score depending on which one you check. The difference between the two credit scores should be small, but if it’s not, you may need to investigate what’s impacting one score and not the other. For example, your specific VantageScore® could only be using information from two of the three credit bureaus, while your FICO® Score is using information from all three.

What are the Factors that Influence Your Credit Score?

Equally as important as knowing how to check your credit score and your credit report is knowing how to get and maintain a good score. According to FICO®, five main factors go into the credit score equation, and each factor is weighted differently:

  • Payment History: Your track record for repaying loans on time accounts for 35% of your credit score calculation, according to FICO®.
  • Amounts Owed: Owing money on your accounts doesn’t necessarily mean you’re a high-risk borrower with a low FICO® Score. However, if you’re using a lot of your available credit, this may indicate that you can’t afford your lifestyle and are relying too heavily on credit. How well you utilize your credit makes up 30% of your credit score calculation, according to FICO®.
  • Length of Credit History: The age of your oldest and newest credit accounts is averaged to determine your overall credit age (the older your credit age, the better). This accounts for 15% of your credit score, according to FICO®.
  • Credit Mix: The number of different types of credit that you have, including car loans, student loans, credit cards, home loans, and more, accounts for 10% of your credit score, according to FICO®. A diverse mix of credit types is usually good for your credit score.
  • New Credit: The number of hard inquiries and credit accounts you have recently opened accounts for 10% of your credit score, according to FICO®.

What are Credit Score Ranges?

Your credit score will range somewhere between 250 and 900, and the higher the score, the better. According to FICO®, credit scores can be viewed on a numerical scale from poor to excellent:

  • Poor: 250-579
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Exceptional: 800-900

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What is a Good Credit Score?

As shown above, you enter the “good” range around 670-739, and anything above that’s even better. Lenders generally agree that the higher the score, the lower the risk, and will reward you accordingly.

How to Check and Monitor Your Credit

Because your credit score plays such a big role in so many aspects of your life, it’s important to track it over time to ensure that you’re reaching your credit goals. It’s also important to review your credit score and credit report for errors, which might negatively impact your overall score through no fault of your own.You can check your credit score and receive a free credit report once a year through each of the three major credit bureaus — Equifax, Experian, and TransUnion. You may also be able to check your credit score more consistently through your financial institution.

How to Improve Your Credit Score

Your credit score is constantly changing, based on your financial decisions and changes to the factors that affect your credit score. Here are a few things to do, and a few things to not do!

  • Pay your bills on time: With payment history making up 35% of your credit score, it should come as no surprise that missing a payment can cause a significant change to your score. At the same time, a history of on-time payments can improve your credit score. So, it’s very important that you always make at least your minimum payment on time each month.
  • Keep your credit utilization low: When you use all your available credit, it can signify to lenders that you’re financially overextended and at risk of defaulting on your loan obligations. Keeping your credit utilization lower can often help your score.
  • Start using credit early: A longer credit history can often be beneficial to you. Not only do you need a minimum of 6 months’ worth of credit to generate a FICO® Score, but a long history of good credit can come in handy if you hit a road bump. A longer history showcases your experiences with credit and, in theory, a longer credit history results in a more accurate score.
  • Diversify your credit: Having multiple types of credit, like a credit card and a student loan, can be a good thing because it shows that you can handle paying back different kinds of loans or multiple loans at once. Just be careful about how to approach adding those new lines of credit.
  • Slow down on new accounts: Every time you apply for a loan, your lender will make a hard inquiry on your credit report. Too many of these inquiries within a short period don’t reflect well on your financial situation and can impact your credit score.

Summary: Everything to Know About Credit Scores

A credit score is a 3-digit number that has a big impact on your finances and will range somewhere between 250 and 900. Your score is based on the information gathered by credit bureaus and then run through a model, like FICO® Score or VantageScore. There are five main factors that go into the credit score equation, and each factor is weighted differently. It’s widely agreed that the higher the score, the better.

Check and monitor your credit score often. And at least once a year, review your credit report. Credit scores are constantly changing, so you can raise your score by developing good financial habits. Don’t be intimidated by the complexity of your credit score. Take simple steps to understand your score as you work to build or rebuild credit and stay on track with your overall financial goals.