- Your credit score represents your creditworthiness to lenders based on your credit history.
- Credit scores from the two main credit scoring models, VantageScore and FICO, range from 300 to 850.
- A good FICO credit score is 670 or more, while a good VantageScore credit score starts at 661.
Your credit score plays a pivotal role in your financial life, affecting everything from applying for an apartment lease to buying a house or financing a car. Some employers even use it to help decide whether to offer you a job.
Because it has such a big impact in so many areas, it's important to understand your credit score, how it's calculated, and how to improve it.
What is a credit score?
A credit score is a numeric representation of your credit reports, documents containing information on your credit activity compiled by the three credit bureaus: Experian, Equifax, and TransUnion.
Your credit score signals to lenders how trustworthy you are as a borrower. The higher the score, the more creditworthy you are. People who have high credit scores get better rates when they borrow money because lenders see them as a safer investment.
Credit scores range from 300 to 850.
As a representation of your credit report, credit scores are regularly updated to reflect any new information on your report. If you fill your credit report with positive information, your credit score will increase. On the other hand, negative information, such as late payments or high levels of debt, will cause your credit score to drop.
There are a handful of credit scoring models, though the two most commonly used are FICO and VantageScore. The most significant difference between these scoring models is how they calculate credit scores based on your credit information and what constitutes a good credit score.
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How your credit score is calculated
When FICO and VantageScore assign you a credit score, they are really grading your credit report. They pay attention to specific information recorded to determine how much risk you pose to a lender.
Although the exact formulas are proprietary, we still have a pretty good idea of how FICO and VantageScore calculate your credit score. Here's the breakdown:
| FICO | VantageScore |
Payment history (35%) Credit balance (30%) Length of credit history (15%) New credit (10%) Mix of credit accounts (10%) | Payment history (35%) Length & type of credit (30%) Credit utilization (20%) Credit balances (11%) Recent applications (5%) Available credit (3%) |
With the FICO and VantageScore models, you may have different scores across credit reports from each credit bureau. Each credit report may have slightly different data if your lenders report your payments at different times.
The credit scoring algorithms tweak how they calculate credit scores every few years. The latest versions of FICO and VantageScore, 10T and 4.0, respectively, use trended data in their calculations. Trended data considers the past 24 months of your credit balances as an indicator of future balances.
Here is what the different factors mean:
Payment history
The most significant aspect of your credit score is your payment history, which looks at how consistently you've made payments. Records of a delinquency, debts in collections, or bankruptcies will negatively impact your credit history, lowering your credit score. A delinquent payment will remain on your credit report for seven years, though its affect on your credit score will decrease as it ages.
Credit balance
Credit balances look at how much credit you're using at the moment. It's generally recommended that you keep your credit utilization ratio below 30%. If you have a credit limit of $9,000, for instance, this means using less than $3,000 at a given time. The lower the ratio, the better off you are. The average utilization rate for someone with an excellent credit score is 5.7%.
Length of credit history
Credit scores also consider how long you've had your credit accounts. The older your accounts, on average, the better your credit score.
Credit mix
Credit mix is important because when potential lenders decide what credit or interest rates to offer you, seeing a steady payment record on a mix of credit types (including credit cards, mortgages, auto loans, and personal loans) has a positive impact because it shows you can manage the financial obligations that come with borrowing various types of debt.
New credit and recent applications
New credit and recent applications both refer to hard inquiries on your credit report. A hard inquiry triggers when a creditor considers your application for credit. This will lower your credit score as a new line of credit increases the chances that you'll mismanage your debt.
However, hard inquiries stop factoring into your credit score after a year and drop off your credit report entirely after two years, so they don't permanently influence a credit score.
Credit score ranges
Both models divide credit score ranges into five categories, which are as follows:
| Credit score category | FICO | VantageScore |
| Poor/Very Poor | 300-579 | 300-499 |
| Fair/Poor | 580-669 | 500-600 |
| Good/Fair | 670-739 | 601-660 |
| Very good/Good | 740-799 | 661-780 |
| Exceptional/Excellent | 800-850 | 781-850 |
What is a good credit score?
A good credit score is typically a score above 700. However, a good credit score will vary depending on the credit product you are applying for. A credit score of 670 may be a good credit score for a credit card, while a credit score of 700 will get you the best interest rates for a mortgage loan.
A good FICO credit score starts at 670, while a good VantageScore starts at 661. While these scores will qualify you for loans, they won't necessarily qualify you for the best rates. The higher your credit score is, the better rates you'll qualify for.
Why a good credit score matters
A good credit score will positively impact many areas of your life. Lenders and credit card issuers use credit scores to assess your credit risk and determine your eligibility for credit — whether it makes sense to lend to you or extend credit. Your credit score will also be used to decide interest rates and loan terms. The higher your credit score, the better loan terms and premiums you may be offered.
Credit scores are often used when applying to rent an apartment, and a potential employer may pull your credit report and score as part of a background check.
What is a bad credit score?
A bad credit score, also called a sub-prime credit score and referred to as "poor credit," is any credit score that falls below the "good" risk category, which varies slightly between FICO and VantageScore.
Under FICO, any credit score below 670 is considered a bad credit score or a sub-prime credit score. A bad VantageScore credit score is under 661, slightly more generous than FICO. However, VantageScore isn't used as often as FICO in lending decisions.
A low credit score results from harmful information on your credit report, such as a late payment or delinquency on your credit report.
Bad credit vs. no credit
If you have no credit score, you don't yet have any credit history with the three major credit bureaus — Equifax, Experian, and TransUnion. On the other hand, if you have a bad credit score, you have a credit history, and one or more factors on your credit file are holding your score back.
A credit delinquency, a loan or credit card payment over 30 days late, will stay on your credit report for seven years before falling off. A bankruptcy will remain on your credit report for 10 years before falling off. Until these fall off, delinquencies and bankruptcies will continue to slow any progress you make toward building credit.
That's why having no credit score is, in many ways, better than having a bad credit score because you're starting from a clean slate. However, getting approved for credit can still be challenging when you have no credit score since lenders won't have any credit history on which to base an approval decision.
What to expect from your credit score
Lenders want to lend money and extend credit — that is how they make money. Your credit score shows a lender how you have paid money back in the past and helps them decide whether it will be worth it to lend money to you again. The better your credit score, the more likely they'll decide it's worth it.
| Credit score | What to expect |
| Poor |
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| Fair |
|
| Good |
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| Very good |
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| Excellent |
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How to improve your credit score
You won't have immediate control over some of the factors that affect your credit score. For example, the length of your credit history significantly contributes to your credit score. If you just started your credit journey, your credit score will be lower than someone with 10 or more years of credit history. That's why the average credit score is higher for Baby Boomers than for Gen Z.
Pay your bills on time
With time playing such an important role in your credit score, the best thing you can do is pay off your credit bill every month. If you foresee issues with making those payments on time, open a line of communication with your creditor.
Consider rent reporting
While you can't control how long your credit history is, you can control how much information gets reported to the credit bureaus each month. For example, rent reporting services can ensure that your rent payments impact your credit score by reporting them to the credit bureaus. Some of the best rent reporting services will also report your previous rent payments, typically up to 24 months.
Look into credit-builder accounts
You can also look into credit-builder accounts, which are credit accounts that offer services to people with bad or no credit. Many of these services don't do hard inquiries on your credit report, so signing up for these accounts won't affect your credit score.
Keep your credit utilization low
Remember to keep your credit utilization ratio down on all your revolving credit lines. If you're having trouble with spending, stow your credit card away instead of canceling it so you don't hurt the average length of your credit history.
Use a credit-monitoring service
While building credit, you might like to use a credit monitoring service that will notify you of any changes to your credit report and alert you of upcoming and late bills, which can be helpful for those who need help keeping track of deadlines. Some of the best credit monitoring services are even free.
Frequently asked questions about credit scores
You get a credit score by using and repaying credit, whether that's a loan, a credit card, or a mortgage. If you have no borrowing history, you can use a credit-builder account, which doesn't require a credit score to qualify. You'll need to establish roughly three to six months of credit history before you receive a credit score.
Keeping a high credit utilization ratio (anything above 30%) and missing credit payments will hurt your credit score. Opening too many credit accounts will also significantly lower your credit score.
If you have bad credit, start improving your credit by paying all your bills on time. Get a copy of all three credit reports to see what negative items are being reported. Focus on payment history, credit utilization, and disputing any inaccurate negative items on your credit report.
The lowest credit score is 300 in both the FICO and VantageScore models. However, scores rarely get that low. Poor credit is anything below the "good" range, which is below 670 for FICO and below 661 for VantageScore.
The highest credit score you can achieve is 850 for both FICO and VantageScore, which is an excellent credit score. It will recommend you for the lowest available interest rates, higher borrowing limits, easy approval for rental apartments, and cheaper auto insurance.
