Understanding your credit score and how it works

Your credit score is more than a number. It can impact where you live, what you have, and even where you work. Good or bad, potential creditors define your creditworthiness by your score.

Learning as much as you can about how credit works can help you build a better score and get what you need.

What’s a credit score?

A credit score is typically a three-digit number between 300 and 850. Lenders use the score to decide if it's risky to loan you money. Your score is also used to calculate the interest rate you’ll pay on a loan or credit card.

Your score is based on information in your credit report from a credit bureau. Credit bureaus create your report based on information from banks, credit card companies, and other sources. The three major credit bureaus in the U.S. are Equifax, Experian, and TransUnion. These credit bureaus maintain similar information about how you’ve managed money and debt in the past, but there may be slight differences because not all creditors report to every bureau.

While "credit score" is often talked about as a single score, there are different types of credit scores. FICO® is the most widely used, but there are other credit scoring companies and models.

Most models look at similar factors to determine your score, such as payment history, the amount and type of debt you have, the length of your credit history, and any new credit you've applied for. A good credit score makes it easier for you to get loans or credit cards. A lower credit score might mean you don't qualify for traditional financing or you might be charged a higher interest rate.

What's a good credit score?

What lenders consider a good score varies, but a FICO score below 670 can be a roadblock to traditional financing. VantageScore is another credit scoring model that classifies scores from 661-780 as good and 781-850 as excellent.

FICO score ranges

Source: FICO, March 1, 20231

How can I improve my credit score?

Improving your credit score takes time and effort, but these strategies can help.

• Pay your bills on time.
• Pay down your balances and avoid maxing out your credit cards.
• Build your credit history and avoid closing old accounts.
• Maintain a healthy credit mix of installment loans and revolving credit.
• Avoid applying for multiple credit accounts within a short period.

How can I check my credit score?

It's important to keep an eye on your credit report and your credit score. You can get a free credit report every 12 months from the major credit bureaus through AnnualCreditReport.com. Also, many banks and credit card companies will check their customers’ credit scores for free.

When you get your credit report, make sure everything is correct because mistakes can lower your credit score. If you find something wrong, work with the credit bureau to fix it.

(1) “What is a Credit Score?” MyFICO.