What Is a Credit Score?

A credit score is a three-digit number that rates an individual's creditworthiness and ability to obtain a loan, mortgage, or credit card. A credit score is based on a person's credit history, which includes their active accounts, total debt levels, and repayment history.

The Fair Isaac Corp., now known as FICO, created the credit score model. The FICO Score is the most commonly used, ranging from 300 to 850.

How Credit Scores Work

A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. Lenders are more likely to approve you for loans when you have a high❀er credit score and are more likely toꦕ decline your loan applications when you have lower scores. You can also get better interest rates when you have a higher credit score, which can save you money in the long term.

Conversely, a credit score of 700 or higher is generally viewed positively by lenders and may result in a lower interest rate. Scores greater than 800 are considered excellent. Every creditor defines its own ranges for credit scores and its own criteria for lending. Here are the general ranges for how credit scores are categorized.

• Excellent: 800–850
• Very Good: 740–799
• Good: 670–739
• Fair: 580–669
• Poor: 300–579

How Your Credit Score Is Calculated

The three major credit reporting agencies in the U.S. (Equifax, Experian, and TransUnion) report, update, and store consumers’ credit histories. While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score:

1. Payment history (35%)
2. Amounts owed (30%)
3. Length of credit history (15%)
4. Types of credit (10%)
5. New credit (10%)

• Payment history: Your payment history includes whether you've paid your bills on time. It takes into account how many late payments you've had and how late they were.
• Amounts owed: Amounts owed is the percentage of credit you've used compared to the credit available to you, which is known as 澳洲幸运5官方开奖结果体彩网:credit utilization.
• Length of credit history: Longer credit histories are considered less risky, as there is more data to determine payment history.
• Credit mix: A variety of credit types shows lenders you can manage various types of credit. It can include installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards.
• New credit: Lenders view new credit as a potential sign you may be desperate for credit. Too many recent applications for credit can negatively affect your credit score.

VantageScore

VantageScore is a consumer credit rating product developed by the Equifax, Experian, and TransUnion credit bureaus as an alternative to the FICO Score.

FICO creates a single bureau-specific score for each of the three credit bureaus, using only information from that bureau. As a result, the FICO is actually three scores, not one, and they can vary slightly as each bureau will have different calculation methods. A VantageScore is a single, tri-bureau score combining information from all three credit bureaus and used by each of them in the same way.

How to Improve Your Credit Score

When information is updated on a borrower’s credit report, their credit score changes and can rise or fall based on new information. Here are some ways that you can 澳洲幸运5官方开奖结果体彩网:improve your credit score:

• Pay your bills on time: Six months of on-time payments are required to see a noticeable difference in your score. 
• Increase your credit line: If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. However, it is important not to spend this amount to maintain a lower credit utilization rate. Meanwhile, try to pay down your debt.
• Don’t close a credit card account: If you are not using a certain credit card, it is best to stop using it instead of closing the account. 澳洲幸运5官方开奖结果体彩网:Depending on a card's age and credit limit, it can hurt your credit score if you close the account.
• Work with a credit repair company: If you don’t have the time to improve your credit score, 澳洲幸运5官方开奖结果体彩网:credit repair companies can negotiate with your creditors and the three credit agencies on your behalf, in exchange for a monthly fee.
• Correct any errors on your credit report: You are entitled to one free credit report per year from each of the main credit bureaus. You can get your report through . You can also hire a monitoring service to help keep your information secure.

The Bottom Line

Your credit score is a number that can have a significant impact on your financial life. If you have a good credit score, you are more likely to qualify for loans and to get better te𓄧rms that can save you money. Learning what your credit ꦛscore is and what goes into calculating it can help you improve it.