your credit scoresUnderstanding your credit can be a tricky thing to figure out, especially considering there are a number of factors that determine whether you have good or bad credit. One of those factors is your credit scores, which are calculated numbers that tell lenders if your credit standing is excellent, good, average, fair or poor. To help you learn what these numbers are and why they’re so important, we’ve got the details on everything credit-score related.

What are credit scores?

Although you may think your credit scores are the same as your credit reports, there is a difference between the two. Your credit reports are generated by the three major credit bureaus Equifax, TransUnion and Experian, and the information found on your credit reports is then used to calculate three sets of three-digit numbers that are your credit scores, which usually range from 300 to 850. Your credit scores determine your level of creditworthiness, essentially how likely you are to default on a loan or credit card, and your credit rating is determined by a credit score model, like FICO, CreditXpert, VantageScore and others. For example, FICO scores, which are generated by the Fair Isaac Corporation and supposedly used by 90% of the top credit lenders, deems a score around 750 and above as excellent, scores around the 700’s are considered good, those sitting near the 650’s are average and scores under 600 are considered bad. Generally speaking, the higher your credit score, the better your credit standing.

Why do your credit scores matter?

Your credit scores are important because they’re essentially your financial reputation — they highlight how financially responsible or irresponsible you are. Creditors, landlords, utility companies (such as your local water, electric and gas company) and even potential employers may take a look at your credit scores to determine how financially responsible of a person you are. This means if you have poor or fair credit, you could be turned away from renting an apartment or required to put down a security deposit when you open an account with a utility company. As you likely know, your credit scores also have a major impact on your credit accounts, like a credit card, personal loan or mortgage, as higher credit scores will give you lower interest rates and more favorable loan terms. On the other hand, if your credit history proves that you’re unreliable and you have low credit scores, you likely won’t be trusted to repay the money you’re trying to borrow, which could result in your credit card application being denied, higher interest rates on a loan or being approved for a lower amount than you hoped for.

How are your credit scores calculated?

Each credit score model (FICO, CreditXpert, VantageScore, etc) has its own standardized formula to determine your credit scores, but all models usually base their scores on similar factors. These five factors hold different weights in calculating your credit scores, as detailed by FICO, combining both positive and negative information from your credit history. The majority of your credit scores are based on payment history (35%) and amounts you currently owe (30%), while the rest of the scores is determined by the length of your credit history (15%), new credit (10%) and types of credit you use (10%), such as credit cards, student loans and mortgages.

Are all your credit scores the same?

Because credit scores are generated from three different credit reports, which usually have different items reported to them, your credit scores, like your credit reports, will not all be the same across the board. For example, your TransUnion credit score may be a 718, while your Equifax credit score sits at a 735 and your Experian credit score is a 768 — this is completely normal. Since your credit scores can cover so much of a range, it’s essential for you to check all three of them to see where they rank.

How to check your credit scores

Knowing what your credit scores are will help a great deal in determining whether you have good or bad credit. Although you can check all of your credit reports for free each year through AnnualCreditReport.com, this does not currently extend to your credit scores, which means you’ll have to fork up some money to see each of your credit scores (less than $10/score). An alternative option that will not only help you check your credit scores one time, but also continue to keep tabs on them after that is a credit monitoring service, as most of the services we review provide you with all three scores and reports at signup. As an added bonus, credit monitoring services will also give you an explanation of what is hurting or helping your credit scores, so you’ll have a better understanding of what you can do to help improve your credit. If you’re looking to check your scores once or not sure if you want to make a commitment to a service, you’re in luck because a majority of credit monitoring services offer free trials, which means you can try them completely free. Another way to keep tabs on your credit scores is through your a credit card because a large majority of them offer your credit scores for free with your card membership. That said, it should be noted that this isn’t the best way to go (unless you have 3 credit cards that provide your Experian, Equifax and TransUnion credit scores) because you’ll only see one credit score, as opposed to all three, which means one of your scores could significantly fall as a result of identity theft or an error on your credit report and you’ll have no idea. Still, access to one credit score is better than none.

Read our credit monitoring reviews to learn more about these services and find the best one for your needs.