What Is a Credit Score?

A credit score is a three-digit number, usually on a scale of 300 to 850, that estimates how likely you are to repay borrowed money and pay bills.

Credit-scoring companies plug information from your credit reports into mathematical formulas that produce your credit scores. A low credit score may not keep you from being approved for credit, but you may have to pay a higher interest rate or put money on deposit. You also may have to pay more for car insurance or put down deposits on utilities. Landlords might use your score to decide whether they want you as a tenant.

A higher credit score can give you access to more credit products — and at lower interest rates. Borrowers with scores above 750 or so frequently have many options, including the ability to qualify for 0% financing on cars and for credit cards with 0% introductory interest rates.

When lenders or card issuers “check your credit,” they may be looking at your credit report, credit score or both. You can check your own credit — it doesn’t hurt your score — and know what the lender is likely to see.

Credit score ranges

The most commonly used scoring models have a credit score range of 300 to 850. Creditors set their own standards for what scores they’ll accept, but these are general guidelines:

A score of 720 or higher is generally considered excellent credit.

A score between 690 and 719 is considered good credit.

Scores between 630 and 689 are fair credit.

And scores below 629 are poor credit.

The scoring models used most are VantageScore 3.0 and FICO 8, and they tend to move in tandem. If you have an excellent VantageScore, your FICO is likely to be high as well. The two scoring models pull from the same data but weight the information slightly differently.

The average FICO credit score in July 2020 was 711, squarely in the good range. This credit score chart breaks down average FICO 8 scores by age, using data from September 2019.

AgeAverage FICO 8 score

The average VantageScore as of October 2020 was 688, near the top of the fair range. VantageScore breaks down its demographic groups slightly differently. This credit score chart shows average score by age, based on the October 2020 “State of Credit” report from credit bureau Experian.

AgeAverage VantageScore 3.0

Most lending decisions use FICO scores, and the same person’s score can vary depending on which credit bureau supplied the data, because not every creditor reports to all three bureaus.

What factors affect your credit score?

The two main credit scoring models, FICO and VantageScore, consider much the same factors but weight them slightly differently. For both scores, the two things that matter most are:

Paying bills on time. Credit scores reward a track record of paying on time, every time. A misstep here can be costly, and a late payment that’s 30 days or more past the due date stays on your credit history for years.

How much you owe. Credit utilization, or the amounts of your balances relative to credit limits, is weighted almost as heavily as paying on time. It’s good to avoid using more than 30% of your credit limits, and lower is better. The good news is that a high credit utilization stops hurting your credit as soon as a lower one is reported to the credit bureaus. You can take a number of steps to lower your credit utilization and help your score.

Much less weight goes to these factors, but they’re still worth watching:

Credit age: The longer you’ve had credit, and the higher the average age of your accounts, the better for your score.

Credit mix: Scores reward having more than one type of credit — a traditional loan and a credit card, for example — to a greater extent than having just one type.

How recently you have applied for credit: When you apply for credit, a hard inquiry on your credit report may result in a temporary dip in your score.

Where the information comes from

The information on your credit accounts is stored by credit-reporting agencies, also called credit bureaus. The three largest are Equifax, Experian and TransUnion. If you use credit, they probably have a record of it. Credit-scoring companies use the information to produce credit scores, and creditors buy reports and scores to evaluate applicants.

Reporting credit information is voluntary, and there are strict guidelines for how to do it. But creditors choose to do it because information about consumers’ past credit habits helps them make better decisions about risk. Consumers do not have to give them permission to do this.

Lenders look at more than credit scores

When you go to borrow money, a good credit score does not guarantee a good interest rate — or even approval. Nor does a lower score indicate you cannot get credit at all.

Your income and other debts play a key role in some lending decisions, as lenders consider what you owe alongside what you earn and assets you have accumulated. Lenders use a debt-to-income ratio calculation to evaluate whether you have room in your budget to repay a loan.

How to monitor your credit score

It’s important to know where you stand, so it pays to monitor your score. You can get a free credit score from a personal finance website such as NerdWallet, which offers a TransUnion VantageScore 3.0.

It’s important to use the same score every time you check. Doing otherwise is like trying to monitor your weight on different scales — or possibly switching between pounds and kilograms.

So, pick a score and get a game plan to monitor your credit. Changes measured by one score will likely be reflected in the others.

For best results, practice healthy credit habits: use credit lightly, pay on time, apply for credit sparingly, think twice before closing an account and consider opening a credit card if you have only installment loans or vice versa.

Remember that, like weight, scores fluctuate. A score is a snapshot, and the number can vary each time you check it.

As long as you keep it in a healthy range, those variations won’t have an impact on your financial well-being.

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