Credit Score

Credit score summary:

• A credit score is a three-digit number that indicates how likely you are to repay a debt based on your credit and borrowing history.

• Lenders and credit card companies consider your credit score when they decide whether to loan you money or extend a line of credit.

• Paying debts on time is a good way to build a strong credit score.

Credit Score Definition and Meaning

A credit score is a number that tells lenders how likely you are to repay a debt. A higher credit score means you have a history of paying debts on time. A lower credit score usually comes as a result of falling behind on debts or maxing out credit cards. 

Types of Credit Scores

There are two primary types of credit scores used in the U.S.—FICO® and VantageScore^®. Both range from a low of 300 to a high of 850. They use similar criteria to arrive at those numbers.

There are three major credit reporting agencies in the U.S. that use the FICO and VantageScore models to calculate consumer credit scores—Equifax, Experian, and TransUnion. Each bureau has its own method of calculating credit scores using the information in your credit history, so it’s possible to have three different scores with the same credit history.

Key Components of Credit Scores

FICO calculates credit scores as follows:

• Payment history: 35%

• Amounts owed: 30%

• Length of credit history: 15%

• Mix of credit accounts: 10%

• Newly opened accounts: 10%

VantageScore calculates credit scores based on:

• Payment history: 41%

• Percentage of credit being utilized: 20%

• Length of credit history and credit mix: 20%

• New credit: 11%

• Amounts owed: 6%

• Available credit: 2%

Key Aspects of Credit Scores

Credit scores are used by lenders and credit companies to make decisions about who to loan money to and how much to charge them. Financial institutions decide what they will consider a good credit score for the purpose of approving versus denying loan or credit card applications. 

One lender might approve a candidate with a 640 credit score, while another might impose a 670 minimum. Some insurance companies also rely on your credit rating to establish the premiums you pay. (Insurance providers don’t get the same version of your credit score that a lender would get.)

Experian assigns the following categories to FICO® Scores:

• Poor: 300-579

• Fair: 580-669

• Good: 670-739

• Very Good: 740-799

• Exceptional: 800-850

You can check your credit score for free through Experian or Equifax. Your bank or credit card company might also provide you with your credit score when you log into your account.

Building and maintaining a strong credit standing could not only make it easier to get approved for a loan or credit card, but lead to a more affordable borrowing rate. 

Ways you can improve your credit score include:

• Pay your bills on time

• Keep credit card balances low or pay off existing debt

• Get a credit limit increase but don’t increase the balance that you owe

• Keep the same credit card accounts open for many years

• Limit the number of new loans and credit cards you apply for in a short period of time

• Get added as an authorized user to an existing credit card account in good standing

• Correct mistakes on your credit report

Freedom Debt Relief is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.