A credit score is a number that is used by companies to help decide if they will give people loans, credit cards and other lines of credit. Your credit score determines if you are eligible for financial products, or if you’re even allowed to live somewhere.
The credit score number is created by a third party company that monitors how people have paid their debts, how much debt they have and estimates how likely they are to pay back a new debt. Generally, credit scores range from 300 points to a perfect 850 points with your FICO and Vantagescore credit score and 360-840 on Experian.
What is a good credit score? Anything above 700. What is an excellent credit score? Anything above 750.
Want to know exactly how credit scores work, how to check credit scores, what factors impact credit scores, how to get good credit and fix bad credit, and why you have different credit scores? Read on to have credit scores explained in detail. Click on the links below to jump straight to a section:
Credit Score Ranges
How Do I Check My Credit Score?
How Do I Check My Fico Score?
Top Free Credit Score Sites
What is the Difference Between a Credit Report and a Credit Score?
What Factors Affect My Credit Score?
Why Do I Need a Good Credit Score?
How do I build Good Credit?
How do I fix Bad Credit?
Credit Score Ranges
Credit scores can range from 300 to 850. The higher they go the better the score. Curious as to exactly what makes good credit or bad credit in a score? Read on.
What is an Average Credit Score?
According to FICO, the median (most likely middle score) FICO credit score in the US was 713 in 2014.
What is an Excellent Credit Score?
Anything above 750 is considered an excellent credit score. People with excellent credit scores have an easier time getting credit. They also get approved for higher credit limits. People with excellent credit scores pay less interest on their payments.
What is a Good Credit Score?
Between 700 to 749 is a good credit score. This is where the average credit score sits near. People with good credit scores still get approved easily for loans and credit (unless they’re asking for too large of an amount), but they will usually get a slightly higher interest rate than people with excellent credit.
See also: What is a Good Credit Score
What is a Fair Credit Score?
A fair credit score is one between 650 and 699. People with fair credit can get approved, but they’re likely going to have to pay more in interest due to the fact they’re in a higher risk group of borrowers.
What is a Poor Credit Score?
A poor credit score is 550-649. People with a poor credit score might get turned down for some lines of credit and loans. Credit that they do get will likely have high, or very high, interest rates.
What is a Bad Credit Score?
Anything less than a 550 is a bad credit score. At this score, it is hard to get approved for credit or loans.
How do I Check My Credit Score?
Now more than ever it’s easy to find your credit score without having to shell out your own money. Each credit agency has a way for you to find the score, and there are many third party sites that are licensing the information in order to give you one, or multiple, credit scores.
Types of Credit Scores
Somewhat confusingly, there are two general main types of credit scores, FICO and Vantagescore. You can generally see your Vantagescore credit score for free, but have to pay to see your FICO score. If a lender uses a FICO score and it’s different from a Vantagescore, applicants can sometimes be surprised at a difference in score. That’s because sometimes differences between the scores occur due to slightly different calculations.
Created by the Fair Isaac Corporation this is the oldest of the credit scores and the one people hear about the most. FICO has been around a long time, so there are different ways of calculating FICO scores over the years. As a result each new version gets a number added to the end, like an iOS upgrade. The most recent is FICO 9, but a lot of scores being reported are still FICO 8. The differences come down to tweaks in how the company assesses how credit worthy consumers are.
The big three credit score agencies, Experian, Transunion and Equifax got together to create a competing credit score to FICO that they could use amongst themselves. This became Vantagescore. Originally Vantagescore used a 500-900 score range. However they changed it to match FICO’s 300-800 in 2013. Because both credit agencies use the same scale and are reported to by the same bureaus, essentially scores should look similar.
Top Credit Score Agencies
There are three credit score agencies (or bureaus) that gather information about our credit worthiness. Every payment and line of credit we open gets reported to them. It’s important to know that there are three of them, as the information they have about someone might differ, which could impact the credit score. You don’t have to spend money to get your credit score from them, though. We detail ways to get free credit scores just a little further down.
Experian lets consumers directly pay $1 to signup and see their credit report and FICO score. After the 7 day trial period they charge $21.95 a month for users to be able to see their credit information. Go here to sign up for an Experian account.
Transunion lets consumers sign up to see their credit report and Vantagescore credit score for $1. After a 7 day trial period they will charge $19.95 a month. Go here to sign up for a Transunion account.
Unlike the other two major credit bureaus, Equifax offers a $4.95 trial for 30 days to access to their “Equifax Credit Score model” for intended for “educational purpose.” After that it’s $19.95. Equifax touts the ability to see the other three bureau’s credit scores. Go here to sign up for an Equifax account.
How to Get Your Actual FICO Credit Score
One of things people probably notice is that most credit cards, free credit score services and paid credit score services all report Vantagescore credit scores. While Vantagescore gets information from the same credit reporting agencies that send information to FICO and thus should roughly have the same score, and while Vantagescore now uses the exact same scale of 300 to 850 as FICO, some readers might want to know exactly what their FICO score is and not just their Vantagescore.
To get a FICO score users need to head to MyFICO.org and sign up. MyFICO is $29.95 a month. Alternatively, Experian offers access to FICO at $21.95 a month. Since many lenders pull a FICO score, and not a Vantagescore, getting access to one’s FICO score is valuable.
Top Free Credit Score sites
You don’t have to spend money to find your credit score. There are a number of sites that let you sign up without a credit card and without monthly fees to see your score. They make money by hoping customers sign up for credit card deals through their website, and they show credit card deals based on the user’s credit score. Most of them will require a social security number, as well as other personal details that help them correctly identify who you are.
All of these credit score services are free of charge.
Credit Sesame shows you your Transunion Vantagescore credit score. You can also set up credit alerts for whenever new events happen (like applications for new lines of credit that can help stop identity theft). Credit Sesame also offers Android and iOS apps, making monitoring credit even easier.
Credit Karma offers both Transunion and Equifax Vantagescore credit scores. Like Credit Sesame, Credit Karma offers mobile apps that let you track your credit score from your phone. They make their money off any credit card offers that are tailored to your credit results that you sign up for. Credit Karma also offers alerts.
Quizzle offers Transunion Vantagescore credit scores, but no mobile app. It makes money from offering more than just credit cards tailored to your credit score, but also mortgage and other loans. Quizzle also has plans that offer more benefits under Quizzle Pro ($8/month) and Quizzle Pro+ ($15/month) that offer identity protection, insurance against fraud, and more.
LendingTree gives you your Transunion Vantagescore credit score. LendingTree is more focused on helping people get loans than just the credit score help, but because they make money off facilitating loans they’re able to offer free credit score monitoring and tools.
myBankrate is another site similar in some ways to LendingTree that is focused on helping you apply for loans and offers a Transunion Vantagescore credit score.
myCreditCards focuses on trying to help you find the perfect credit card. As part of that effort it offers you access to your free Transunion Vantagescore credit score.
WalletHub also focuses on trying to help you find the perfect credit card, and also offers access to a free Transunion Vantagescore credit score.
Credit.com offers to help match users to a variety of loans or credit cards, using credit scores. It offers free credit scores as well as advice on how to improve credit while giving users access to their free Experian Vantagescore credit score.
Top 3 Credit Monitoring services
Not interested in having to sign up for multiple accounts to get access to all the different types of credit reports? A credit monitoring service pulls all the credit scores, monitoring and reporting into one service. Some have identity protection as well. But most of them use a simulation of your credit score based on information they get from the three credit reporting agencies.
Lifelock offers scores from all three credit bureaus (Experian, Equifax and Transunion), credit report monitoring, a free 30-day trial and offers credit and identity protection, including $100,000 to $1 million in reimbursement for stolen funds, depending on the plan chosen. Plans range from $8.99 a month to $26.99 a month.
PrivacyGuard offers credit scores for all three credit bureaus (Experian, Equifax and Transunion) created by CreditXpert, credit report monitoring, a $1 30-day trial and $14.99 a month after that. PrivacyGuard notably offers a ‘simulator’ that lets you play around with changes to your credit and shows how that will impact your score. That’s something that can truly help break through any confusion about how credit works.
Identity Guard offers information from all 3 credit monitoring bureaus and a credit score that is provided by CreditXpert. Identity theft insurance, credit monitoring and more are available for $14.99 to $24.99 a month depending on what services you need.
What is the difference between a credit report and a credit score?
A credit report is an accounting of all the past and current loans and lines of credit someone has taken out, as well as reported payments, closings of lines of credit, currently open lines of credit, requests for new lines of credit, late payments, and so on, all gathered up together in a single report.
A credit score is basically a ‘grade’ of all that activity above summarized. That helps a lender not have to dig through all the details but glance at a score when making a decision.
Think of it like this. The report is all the work done in a class over a year. The score is the grade one gets at the end of the year.
What factors affect my credit score?
The exact way credit scores are determined are proprietary secrets. However, in general, payment history is the most important, followed by how much a person owes, the length of credit history, how much new credit they’ve taken on recently and how many different types of credit are all factored in to create a grade.
Obviously, the less you owe the better off you are. However, credit scores are a grade on how well you manage credit, which means you have to have some credit and be paying it. A consumer could pay for everything in cash and never take out a loan and have bad credit. Why? Because they wouldn’t have much payment history (the most important part of the score) or length of history (third most important).
Here are all the public details on how a credit score is calculated:
How a FICO Credit Score is Calculated:
Payment history: 35% of a FICO credit score is weighted by payment history details. Never miss a payment or have a late payment? Then that part of the score will be perfect.
Amounts owed: 30% of a FICO credit score is weighted by the amounts owed. Too much credit and that part of the score is lowered. However, and this is where credit can be tricky, that is also calculated as a percentage of your available credit. To get a perfect score experts often recommend keeping your use of credit between 10% and 20% of your credit line for credit cards.
Length of history: 15% of a FICO credit score comes from how long you’ve had lines of credit. This is a good argument for leaving credit open that you’ve paid off to keep your credit score high. This shows lenders that you’ve been handling credit responsibly for a long time, thus making them feel that you’re a good risk.
New credit: 10% of a FICO credit score focuses on whether you’re getting new lines of credit. This is mainly a negative section: anytime you get new credit the score drops slightly. That includes checking the credit score to apply for a new line of credit (called a hard credit check or hard credit inquiry). Generally 2-3 hard checks a year is the limit, with ones in the last six months holding the greater weight.
Types of credit: 10% of a FICO credit score comes from looking at how many varying lines of credit you have. The score likes to see that you don’t just have credit cards, but car loans and other kinds of loans as well.
How a Vantagescore Credit Score is Calculated:
The Vantagescore credit score model ranks age and type of credit as the second most important component, compared to FICO. They don’t offer percentage influences, either. Here’s how it breaks down:
Payment history: Vantagescore credit scores rank the payment history of an individual and whether they’ve missed payments or been late with them as “extremely influential.”
Age and type of credit: Vantagescore credit scores look at the mix of types of credit and how long they’ve been held as “highly influential.”
Percent of credit limit used: Vantagescore credit scores then also place a lot of importance on how much of one’s credit limit has been used, calling that “highly influential.”
Total balances: Vantagescore credit scores then also look at how much total debt is held, and whether there is any delinquent debt, calling this “moderately influential.”
Recent credit: Just as with FICO, Vantagescore credit scores look for no more than a few hard inquiries to be on a credit report. This is “less influential.”
Available credit: This looks at how much credit you have left on your account and could spend. This is also “less influential.”
Why do I need a good credit score?
Why do you need a good credit score? Because a credit score impacts how much we pay in interest. With a credit card that can be a difference between 13.99% interest all the way up to 22.99% interest.
See also: How to Get a Credit Card with Bad Credit
A credit score on a car loan could make the difference between 1.99% and 9%! How does a credit score impact mortgage rates? The percentages won’t vary as much, but not having a good enough credit score could prevent you from getting a mortgage. If you have less than a 580 you probably won’t be able to get a mortgage. Insurances rates are sometimes affected by credit scores as well. If you don’t have a good credit score, you’ll find it hard to get utilities started without putting down a deposit and the same will go for getting cellphone service. Some employers also check credit, so having bad credit could affect a job search.
How do I fix Bad Credit?
Step 1: Understand your situation and acquire knowledge. You need to find out why your credit is bad. That first step is likely signing up for a credit report so that you find out specifically what all the components of your credit are. Monitor your credit score to see if it is improving or not. Consider using a credit score service like PrivacyGuard that has a simulator that will let you forecast what you can do to improve you score and play with the variables to understand how a credit score changes based on your financial actions.
Step 2: Work on improving payment history. As payment history is one of the biggest impacts on a credit score, if you have any delinquent accounts they need fixed by paying them off or sending dispute letters to the three credit reporting agencies. Look for any late payments or missed payments and see if those can be disputed or how much longer they’ll be on your credit report.
Step 3: Improve amounts owed. Once step 2 is done, the next step is to begin paying down large balances to tackle the section of a credit score that has the next biggest hit to a credit score: amounts owed.
There is no secret bullet for fixing bad credit. It takes paying off debts and time. But monitoring a score and educating one’s self about the components of a score can help the process be smoother and allow us to tweak the scores to our advantage.
How do I build Good Credit?
Much like fixing bad credit, building good credit involves understanding what one’s current credit score is and the components of a good credit score.
See also: 7 Ideas to Boost a Credit Score Fast
Consumers need to make sure they have a perfect payment history to build good credit. They need to pay down the amounts owed. But to build perfect credit, they will also need to make sure they have a variety of credit and a number of lines of credit. However they can’t apply for all those lines at once, or the number of hard credit inquiries will cause a drop in their score. The strategy is to slowly apply for new lines of credit that they pay off in full at once for a variety of things and to constantly monitor how any changes they make affect their score.