Your Credit Score: What It Is and Why It Matters

Learn what’s a good credit score, how it’s calculated, and why a good credit score matters.

A credit score is a number that's based on information in your credit report from a credit reporting agency (CRA), like Equifax, Experian, or TransUnion. Your credit score supposedly indicates the likelihood that you'll default on credit payments. In theory, the higher your score, the less likely you’ll default on a debt.

Mortgage lenders, credit card companies, home equity lenders, auto loan lenders, and finance companies will review your credit score when you apply for credit or a loan. A low score can affect your ability to get a credit card or loan or convince the lender to charge you higher interest.

Credit Scoring Companies and the Credit Score Scale

Credit scoring companies calculate scores using an algorithm or mathematical model. The most common score producer is FICO. You actually have more than one FICO score because FICO has many different scoring models. So, your score will likely vary depending on:

  • the model used to produce it—like FICO, FICO 8, or FICO 9—and
  • which CRA provided the underlying credit report.

FICO also offers industry-specific variations of its scoring models, like for the auto, credit card, or mortgage industry. FICO scores generally range from 300 to 850.

Another type of credit score is VantageScore. The CRAs created this score to compete with FICO. (According to FICO, though, FICO scores are used in over 90% of lending decisions.) VantageScore used to have a different range for scores than FICO, but now it uses the same range—300 to 850.

What Is Your Credit Score Based On?

Although FICO won't reveal exactly how it determines a credit score, it considers the following factors (the approximate weight FICO assigns to each factor is in parentheses):

Payment History (35%)

Your score is negatively affected if you’ve paid bills late, had an account sent to collection, or declared bankruptcy. The more recent the problem, the lower your score.

Amounts Owed (30%)

If the amount you owe is close to your credit limit, that’s likely to have a negative effect on your score. Also, if you carry a balance on a number of accounts, that might lower your score because it looks like you're overextended.

Length of Your Credit History (15%)

The longer your accounts have been open, the better.

New Credit (10%)

If you have recently opened many new accounts, that can negatively affect your score.

Credit Mix (10%)

FICO says it's looking for a "healthy mix" of different types of credit, both revolving and installment accounts. This factor is important only if there isn't a lot of other information to use in determining your score.

What Is a Good Credit Score?

Again, FICO scores generally range from 300 to 850. The highest score you can get on most scales is 850. Lenders usually consider borrowers who have scores above 680 as less risky. Those with scores over 760 normally get the best rates. People with scores of 620 and lower are typically considered a poor risk.

If your score is low, you might have a hard time convincing a creditor to make you an affordable loan or any loan at all. But just as your credit history can vary from CRA to CRA, so can your credit scores. It's possible to have a fairly high score with one CRA and a somewhat lower score with another, just as you might have a clean credit report with one CRA and a muddied record containing errors or inaccurate information with another. (Learn how to dispute incomplete and inaccurate information in your credit report.)

How to Check Your Credit Score

With all the hype about credit scores in the media, many people want to find out what their credit score is. Unfortunately, unlike your credit report, you're not automatically entitled to receive one free credit score per year.

If you want to pay to find out your credit score, the FICO website offers access to up to 28 of the most widely used FICO score versions. Again, FICO claims that its scores are used in more than 90% of lending decisions. FICO also offers consumers the ability to buy a copy of their credit scores based on their Equifax, Experian, or TransUnion file.

Which Credit Score Matters Most?

Other companies, including the CRAs, offer credit scores for sale, but it’s not always worth the money. Here’s why. Many companies selling credit scores do not give you actual credit scores that creditors use. Instead, these companies sell you a score developed to assist consumers in understanding credit scores or a VantageScore, which fewer creditors use.

Even if the company does give you your real credit score, because creditors use different scores (and sometimes generate their own), you can’t be sure that the score you buy is the one any particular creditor will rely on. Also, if you buy your score from one of these companies, watch out for extra fees for services like credit monitoring, which can drive up the price.

Ultimately, the score that matters most to you is the one that any particular lender or creditor relies on after you apply for credit.

How to Get Your Credit Score for Free

In certain situations, a creditor has to give you your credit score for free. This generally happens when the creditor relied upon your credit score in making a credit decision, like when:

  • you apply for a residential mortgage
  • a creditor charges you a higher interest rate, or
  • your state requires creditors to disclose your credit score.

Because the rules regarding when creditors must provide your credit score are complicated, the best policy is to ask for more information whenever a creditor denies you credit, offers credit terms less favorable than those you requested or think you deserve, reduces your credit limit, or cancels your credit card.

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