What is a credit score?

Companies have built formulas to turn the information in your credit report into a number that represents how much of a credit risk you are. These numbers are called credit scores. Most credit scoring systems use the same numerical range which is between 300 and 850. A higher score is better, and indicates that you are less of a credit risk. The distribution of credit scores in the U.S. according to Fair Isaac, the company that produces FICO scores (the most widely used credit scores), is as shown below:

FICO Chart

Credit scores are an extremely important part of how lenders evaluate the likelihood that you will pay back your loan on time, but they also use other information when deciding whether to grant you credit and how much to grant you. While different creditors will evaluate scores differently and there are no hard and fast rules, some general guidelines for what scores mean are shown below. Keep in mind that other factors will also affect the type of credit you might be eligible for.

Over 750: Excellent - you should be eligible for any type of credit you want at the best rates
720-750: Very good – you should be eligible for almost any type of credit and will usually get the best rates
660-720: OK - you will be able to get most types of credit, but will often not get the best rates or products
620-660: Below Average - you will still be able to get credit in many cases, but will have to pay higher interest rates than others
Below 620: Bad Credit - you will have difficulty obtaining credit and when you get it, your rates will be high

Unfortunately, it is not as simple as each person having one credit score. Since the scores are calculated based on the information in your credit report and you have three different credit reports (one from each of the 3 credit bureaus), you know that you will have three different credit scores. Furthermore, there are a lot of different formulas to calculate credit scores. FICO is the most widely used formula but each of the credit bureaus also has their own formula, as do countless other companies. Many lenders with whom you have a relationship calculate a custom score based on the additional information they have about you outside of what is in your credit report. So for each different credit score formula, you will have 3 different credit scores. And since there are many different formulas, that means you will have lots of different credit scores. The credit scores you receive from the credit monitoring services reviewed at NextAdvisor.com are either FICO scores or the credit bureaus' scores. The service reviews indicate which type of score is offered. In general, it is best to get your FICO score, since that is the most common score used by lenders. However, the other types of scores are typically very similar to the FICO score. Also, keep in mind that as your credit report accumulates new information, that new data will be used to recalculate your score, so your score will also change over time.

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