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What Is a Credit Score?
Learn what makes up your credit score, how to build yours, and other credit score basics in this guide.
A breakdown of how to build credit and the benefits of a good credit score.
Learn what makes up your credit score, how to build yours, and other credit score basics in this guide.
Learn how credit scores are calculated, how different lenders look at your credit score, and how your credit score compares.
Attaining a perfect credit score is not impossible. Learn what perfect credit is and get answers to all of your credit related questions.
In order to improve or maintain your credit score, learn about the three main kinds of credit: installment, revolving, and open. This will help you decide how to use each type.
A look at how credit scores are grouped and what these ranges mean.
| Credit Score | Category | What to Expect |
|---|---|---|
| Credit Score 781-850 | Category Excellent | What to Expect You're likely to qualify for financing and may receive the best interest rates and terms available. |
| Credit Score 661-780 | Category Good | What to Expect You're likely to qualify and receive competitive offers on financing (i.e. lower rates, etc.). |
| Credit Score 601-660 | Category Fair | What to Expect You may qualify for financing, but as a subprime borrower you probably won't get the best deal a lender has to offer. |
| Credit Score 500-600 | Category Poor | What to Expect It may be difficult to qualify for financing, depending on the lender. When you do qualify, you should expect to pay more. |
| Credit Score 300-499 | Category Very Poor | What to Expect You're unlikely to qualify for financing. |
How to build credit for the first time or rebuild it after financial setbacks.
Explore our list of proven tactics to help you build credit. Filter by short or long term tactics, to find the approach that can help you right now.
Starting fresh with credit? Discover options like credit builder loans, secured credit cards, and rent reporting services to get started.
A credit builder loan is designed to help people who have little or no credit history. You’re required to make fixed payments upfront before accessing the loan.
Ways to rebuild credit include: keeping your credit utilization ratio low, using a secured credit card, and becoming an authorized user.
Unpack the jargon: tap to reveal straightforward definitions.
A lender or service provider will perform a credit check to assess your credit history before lending you money or giving you a line of credit.
A statement that contains information about your credit history and current credit situation. This includes your loan payment history, the status of your credit accounts, and any collections, bankruptcies, or foreclosures in your name.
A number that demonstrates how creditworthy you are using information from your credit history. Your credit score is one factor used by lenders to determine whether to approve you for a loan, credit card, or other type of credit. Your credit score may also impact your interest rate when you take out credit. Credit scores typically range between 300 and 850.
Your credit utilization ratio (CUR) refers to how much credit you are using compared to your total credit limit. Your CUR can also be spread across multiple lines of credit and credit cards for a cumulative credit utilization ratio. For example, if your credit limit is $5,000 and you’re currently borrowing $1,000, this would be a 20% credit utilization ratio.
The most widely used version of a credit score in the U.S.; large financial institutions and many lenders use the FICO® Score to make credit and loan approval decisions.
When a lender or credit card issuer pulls your credit report as part of the application process for a loan or other form of credit, this is known as a hard inquiry. This request will be recorded on your credit report, and a hard inquiry can have a small negative impact on your credit score.
An interest rate is the amount a lender charges a borrower and is a percentage charged on your principal balance (the amount loaned). The interest rate on a loan is usually expressed as an annual percentage rate (APR). The APR is the actual cost you pay to borrow each year, and may include applicable fees as well as interest. Interest rates can vary depending on things like the loan length, the borrower’s credit score, and other factors.
The principal balance of a loan is the amount of money you have borrowed and have to pay back to the lender. If you take out a loan for $2,000, the principal balance will start at $2,000, and when you have paid back the loan in full, the principal balance will be $0.
A soft credit inquiry or check typically occurs when a financial firm or employer wants to check your existing credit obligations or extend you offers of credit. Some examples of these situations include job applications that require a background check, applying for insurance, receiving offers of preapproved credit, or if you request a copy of your own credit report. A soft credit inquiry will not impact your credit score.
Demystifying credit scores and credit reports.
Your credit score is calculated using a range of information about your use of credit. For FICO scores, this includes payment history, credit utilization, length of credit history, credit mix, and the number of new accounts you’ve opened recently.
Your credit score is one factor that can affect your ability to get approved for loans and lines of credit like mortgages, car loans, and credit cards. The lower your credit score, the more difficult you might find it to be approved for these things and the higher the interest rate you’ll pay if you are approved. With a higher credit score, you’re more likely to be approved for loans and credit, and you’ll typically pay lower interest rates.
Things that can affect your credit score in a negative way include late or missed payments, applying for too much credit in a short period of time, and using too much of your available credit.
If you want to check your credit score, you can obtain a free weekly credit report from credit bureaus Experian, Equifax, and TransUnion via www.annualcreditreport.com. You can also see your credit report and your Equifax FICO Score for free every month through a free plan with MyFICO.
It’s a good idea to check your credit report at least once a year to look for any possible discrepancies that might be affecting your score. You should also check it if you’re planning to apply for financing, if your credit card is stolen, or if you’ve been a victim of identity theft.
If you’ve got a low credit score or no credit history at all, there are a few things you can do to lift your credit score. Consider becoming an authorized user on a trusted person’s credit card, make payments on time, reduce your credit utilization, and dispute any inaccurate information on your credit report. These actions might give your credit score a lift, depending on your personal circumstances.
Minnesota currently has the highest credit score on average (739), while Mississippi has the lowest (675). Here’s all the states and yearly trends.
Knowing your credit card utilization rate and why it’s important can help you better manage your finances.
The average American has a 703 credit score. That's up from 687 in 2010 but lower than 706 in 2019.
Find out the average credit score across all age groups in the U.S. See how you compare to others on average and when your credit score starts.
Discover the minimum credit score needed when buying a house through conventional, FHA, VA, USDA, and jumbo loans.
It is possible to buy a house with bad credit, but there are a few factors that mortgage lenders will look at.
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