# What Is a Credit Score?

> **Definition**
>
> A credit score is a numerical expression representing the creditworthiness of an individual that helps determine the amount they can borrow and the applicable interest rate.

## 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](https://www.investopedia.com/terms/f/ficoscore.asp) is the most commonly used, ranging from 300 to 850.

### Key Takeaways

*   Lenders use credit scores to evaluate an individual's ability to repay loans.
*   The three main U.S. credit bureaus are Equifax, Experian, and TransUnion.
*   Federal law enables consumers to obtain a free annual copy of their credit report from each of the three credit bureaus.  
    

> **Fast Fact**
>
> Your credit score may determine the size of the deposit required to get a smartphone, cable service, or utilities, or to rent an apartment. Prospective employers may also check a candidate's credit score before making an offer.

## How Credit Scores Work

A credit score can significantly affect your financial life. It [plays a key role in a lender’s decision](https://www.investopedia.com/what-credit-score-is-needed-for-a-mortgage-8620711) to offer you credit. Lenders are more likely to approve you for loans when you have a higher credit score and are more likely to 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

> **Tip**
>
> Order your copy of Investopedia's What To Do With $10,000 magazine for more tips about managing debt and building credit.

## How Your Credit Score Is Calculated

The three major credit reporting agencies in the U.S. ([Equifax, Experian](https://www.investopedia.com/investing/experian-vs-equifax/), 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 [credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp).
*   **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.

![Factors That Impact Your Credit Score](https://www.investopedia.com/thmb/IMb28ebzsYD4DykSckacOL222Nc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/credit_score.asp_final2-3f545dab2a8240298052c6a80225e78b.png)

*— Ellen Lindner / Investopedia*

> ****
>
> Kathryn Hauer, CFP, Enrolled AgentWilson David Investment Advisors, Aiken, SCIf you have many credit cards and want to close some that you do not use, closing credit cards can indeed lower your score.Instead of closing accounts, gather up the cards you don’t use. Keep them in a safe place in separate, labeled envelopes. Go online to access and check each of your cards. For each, ensure that there is no balance and that your address, email address, and other contact info are correct. Also, make sure that you don’t have autopay set up on any of them. In the section where you can have alerts, make sure you have your email address or phone in there. Make it a point to regularly check that no fraudulent activity occurs on them, since you aren’t going to be using them. Set yourself a reminder to check them all every six months or every year to make sure there have been no charges on them and that nothing unusual has happened.

## VantageScore

VantageScore is a consumer [credit rating](https://www.investopedia.com/terms/c/creditrating.asp) 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.

> **Fast Fact**
>
> FICO score is the most popular credit score, used by about 90% of lenders.

## 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 [improve your credit score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097):

*   **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. [Depending on a card's age](https://www.investopedia.com/average-credit-scores-by-age-5214511) 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, [credit repair companies](https://www.investopedia.com/the-best-credit-repair-companies-8763909) 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 [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). You can also hire a monitoring service to help keep your information secure.

## What Is a Good Credit Score to Have?

What constitutes a good credit score is ultimately determined by the lenders. Ranges vary depending on the credit scoring model. Generally, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and higher are considered excellent.

## Who Calculates Credit Scores?

There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. They each calculate your FICO score in different ways using the same information. Credit bureaus collect, analyze, and disburse information about consumers in the credit markets.

## How Can I Raise My Credit Score Quickly?

To raise your credit score quickly, you can enroll in a service that includes other payment information, such as your rent and utilities payments, not typically included in your credit score. If you have a good track record with these kinds of bills, enrolling in a service like Experian Boost could raise your credit score quickly.

## 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 terms that can save you money. Learning what your credit score is and what goes into calculating it can help you improve it.

> **Article Sources**
>
> 1.  MyFICO. "[What's in my FICO Score?](https://www.myfico.com/credit-education/whats-in-your-credit-score)"
>     
> 2.  Experian. “[What Is a Good Credit Score?](https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/)”
>     
> 3.  VantageScore, via Internet Archive. “[How It Works](https://web.archive.org/web/20220119154001/https://vantagescore.com/lenders/why-vantagescore/how-it-works).”
>     
> 4.  FICO Score. “[FICO® Scores Are Used by 90% of Top Lenders](https://www.ficoscore.com/about#:~:text=An%20Industry%20Standard%20for%20over,used%20in%20over%2030%20countries.).”
>     
> 5.  Experian. "[Experian Boost](https://www.experian.com/consumer-products/score-boost.html)."