A score quantifies your creditworthiness based on your credit reports
A credit score is a number based on information from your credit reports. Scores range from 300 to 850, with higher scores being best. Credit scores are important because lenders use them to decide whether to approve you for a loan or credit card and to determine what interest rate to give you. Companies may also use your credit scores to determine whether to rent you housing or offer you a job or how much to charge you for auto insurance.
FICO and VantageScore
Most credit scores are created by two major companies: FICO, which is short for Fair Isaac Corp., and VantageScore Solutions. The former is a publicly traded company that produces FICO Scores based on FICO's credit scoring model, and the latter is an independent company that owns the intellectual property rights to VantageScore, a credit scoring model that was jointly developed by the three major credit bureaus: Experian, TransUnion, and Equifax. The three credit bureaus—for-profit businesses that are also referred to as credit reporting companies—retain partial ownership of VantageScore Solutions.
FICO and VantageScores' scoring models enable them to generate individual credit scores using an automated process. Reading through your credit history takes a significant amount of time, and lenders would need to spend considerable resources doing that for every applicant if they didn’t have access to credit scores. Plus, whoever was looking at your application might miss important details in your credit reports or make errors in judgment. Credit scores are a simpler way for potential lenders to determine creditworthiness.
Your credit scores change over time as you make payments and creditors provide information. As a result, your scores may vary from month to month.
The scores you’ll receive with each model will probably vary depending on which credit bureau supplies the information. Each credit reporting company has slightly different data—they're not required to share most information with each other—resulting in higher or lower scores depending on the source material fed into the model.
In addition, different types of credit scores exist for different lending purposes. For example, there are specialized FICO scores for buying a vehicle, getting a credit card, and obtaining a mortgage.
In addition, both FICO and VantageScore are constantly refining their models, and the exact model used can have an effect on your score. The most recent version of the FICO model is FICO Score 9—though FICO Score 8 is still used more frequently—and the latest version of VantageScore is VantageScore 4.0.
Factors That Influence Your Credit Scores
Credit score creators don't share all of the exact details about how their models work, but they do provide information on which factors they give the most weight to.
Always strive to make your loan payments on time, because your payment history is the most important factor in your credit score under both major models.
Payment history: Credit scores are designed to predict if you’ll make payments on time, so it’s no surprise that late payments in your credit history bring down your credit scores.
Credit utilization ratio, amount of debt owed, and available credit: The less you owe, the less risky you are as a borrower. Your credit utilization ratio measures how much of your available credit you’re using. Credit scoring models penalize you if you’re using a high proportion of the credit available to you—for example, maxing out your cards and so owing lots of money to the cards' issuers.
VantageScore recommends keeping your credit card balances below 30% of their credit limits to avoid negative impacts on your credit score.
Length of credit history and age: If you have a long track record of successful borrowing and repaying, lenders are likely to believe you’ll continue that behavior. The length of your credit history is based on a number of factors, including the ages of your oldest and newest accounts and the average age of all your accounts.
To help your credit scores, be careful about closing credit card accounts, especially your oldest one. Closing accounts will likely affect your credit utilization ratio and the average age of your account.
As long as an open card doesn’t tempt you to rack up debt and the card doesn’t have an annual fee, it may be worth keeping it active by making a small purchase, such as a tank of gas, every few months.
Credit mix: Scoring models consider what types of loans you’re using or have used in the past, including credit cards, auto loans, home loans, and more. Lenders like to see that you can handle a mix of different types of loans.
Don’t apply for new loans just so you can improve your credit mix. The costs of debt outweigh any benefit you’d get from increasing your mix, which is one of the least important factors in your credit score.
New and recent credit: Opening new credit accounts quickly can signal that you may be facing financial difficulties and are a riskier borrower. The fewer recent credit inquiries you have, the better.
Credit Score Ranges
Credit scores fall in a range from 300 to 850. With higher scores, you have a better chance of getting approved for loans and qualifying for the best interest rates available.
|FICO Score Ranges|
Sources: FICO and Experian
Checking Your Credit Scores
It’s easy to see your credit scores, although you may have to pay for that information. In June 2020, Experian was offering a free FICO Score and credit report if you created an account with the company. Equifax was charging $15.95 for a report and score. And for $24.95 a month, TransUnion was offering unlimited score and report access plus credit monitoring.
You can view your credit reports for free each year under federal law, but credit bureaus are not required to provide free credit scores.
You might be able to get credit scores from other sources, as well.
- Credit card issuers sometimes provide free credit scores for customers. Ask your current credit card companies whether they offer them.
- When you apply for a loan, you can ask the lender about your score during the application process.
- VantageScore keeps a list of partner sites that offer free access to your score.
- You can purchase FICO credit scores using its website.
Checking Your Credit Reports
Because your credit scores depend on the information in your credit reports, your reports might be more important than your scores. Get your free credit reports, review the information, and fix any errors so that your score accurately reflects your borrowing history.
FICO. "What Is a Credit Score?" Accessed June 3, 2020.
Experian. "What Is a Good Credit Score?" Accessed June 3, 2020.
VantageScore Solutions. "VantageScore Press Kit," Pages 2 and 3. Accessed June 3, 2020.
FICO. "FICO® Scores Versions." Accessed June 3, 2020.
VantageScore Solutions. "Introducing VantageScore 4.0." Accessed June 3, 2020.
FICO. "What's in My FICO® Scores?" Accessed June 3, 2020.
Experian. "VantageScore 4.0 Overview," Page 4. Accessed June 3, 2020.
VantageScore Solutions. "What Influences Your Score." Accessed June 3, 2020.
FICO. "What Is the Length of Your Credit History?" Accessed June 3, 2020.
FICO. "What Does Credit Mix Mean?" Accessed June 3, 2020.
FICO. "What Is New Credit?" Accessed June 3, 2020.