what is a credit scoreUpdated: June 28, 2018

You’ve probably heard that credit can impact many aspects of your life, and you may have even heard of the correlation between your credit scores and love life, but do you actually know what a credit score is? While we’ve talked about the basics of credit reports before, it’s been a while since we’ve dug into the basics of credit scores. Keep reading to learn all about your credit scores, why they matter, how you can check them and more.

What is a credit score?

A credit score is used as a means to sum up your credit risk, acting as a numerical value expressing your creditworthiness level (e.g., the likelihood you’ll pay your bills on time). Each individual with any sort of credit history or credit account has three primary credit scores — one for each of the major credit bureaus (Equifax, TransUnion and Experian). These scores reflect how you manage your credit. Think of it this way: If your credit reports are progress reports, your credit scores would be your final grades. In other words, those who manage their credit accounts well have higher credit scores, while those who poorly manage their credit accounts have lower scores.

Credit scores are regenerated every time someone requests to see them. This means, depending on your financial behaviors, your credit scores can shift every time they’re generated. Because credit scores are constantly changing, it is important to make sure they’re always treading in the desired direction.

Why you should care about credit scores

Credit scores have pull over various aspects of your life. While you may be thinking your credit scores only matter if you’re planning on applying for a new credit card, the reality is they matter all the time. It’s true that creditors and lenders use credit scores as decision-making tools to determine your interest rate or if you’ll be receiving credit, but your credit scores can also determine if you get approved for a home loan or if you get access to utilities, as those also require a credit check. As such, it’s in your interest to know how your credit scores are calculated and what you can do to keep an eye on them.

How are credit scores determined?

Before you go ahead and try to calculate your credit scores, you should know that different credit scoring models calculate credit scores using various systems. The most common types of credit scores are FICO, which claims to be used by 90% of lenders, VantageScore and CreditXpert scores. There are also industry-specific scoring systems, like insurance scores.

Even though there are diverse scoring systems, credit scores are usually calculated using a number of similar factors, including the types of credit accounts you have, your payment history, outstanding balance, credit history’s age and applications for new credit accounts. Depending on the credit scoring system that’s used, these factors carry varying degrees of weight in the score determination process. Additionally, these credit scoring systems associate credit score ratings (e.g., poor, fair, average, good and excellent) with different credit score ranges. For example, FICO and VantageScore both use a 300 to 850 credit scoring scale, but FICO rates scores above 670 as “good,” whereas VantageScore scores above 700 are classified as “good” scores.

While you may be overwhelmed with the different credit score models, the reality is that consumers don’t need to worry about all of these models. Instead, they should just make sure they’re in touch with scores from all three nationwide credit reporting bureaus: Equifax, Experian and TransUnion. As we’ve noted before, most creditors don’t report to all three bureaus, which means all three credit reports are not identical. Since differing credit report information may be used to generate each credit score, your scores usually vary, which is why you should check all your credit scores to know where they stand.

As mentioned above, different creditors will evaluate scores differently, meaning there are no hard and fast rules for credit scores. That said, 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.

  • Excellent credit (over 750): you should be eligible for any type of credit you want at the best rates.
  • Good credit (around the 700s): you should be eligible for almost any type of credit, and you’ll usually get the best rates.
  • Average credit (670 or higher): you will be able to get most types of credit, but you may not get the best rates or products.
  • Below average credit (620 or higher): you will still be able to get credit in many cases, but you’ll have to pay higher interest rates than others.
  • Bad credit (below 620): you will have difficulty obtaining credit, and when you get it, your rates will be high.

How to check your credit scores

Although you’re legally entitled to three free copies of your credit reports every 12 months through AnnualCreditReport.com, you will not be able to obtain your credit scores for free (it costs around $10 per score). If you want to check your credit scores, you have a couple of ways to get them. You can just pay the fees and obtain your scores from AnnualCreditReport.com, but that could get expensive if you’re trying to track your scores’ progress. Additionally, you may be able to check one of your credit scores for free through your credit card, but keep in mind that this won’t show your whole credit picture, as we noted above. Another way to check your credit scores is to subscribe to a credit monitoring service. Our top-rated services not only provide you with all three of your credit reports and scores upon signup, but they also provide you with updates when something changes — that’s extremely helpful if you want to track your scores. What’s more, a number of these services offer free trials, which means you can test out the services and decide if they’re a fit for you — without paying a dime. Visit our credit monitoring service reviews to find a good fit for you.

How can you improve your credit scores?

If your heart dropped after learning your credit scores, you might be tempted to think all is lost. Luckily, there’s plenty of opportunity if you want to better your credit scores. To improve your credit scores, look at the present and toward the future. Pay your bills on time, avoid canceling your credit cards, don’t apply for new credit cards too frequently and practice other responsible credit card use. It’s also important to check your credit reports for errors and potential areas of improvement. After all, it’s hard to improve if you don’t know what your credit health currently looks like.

Now that you know about credit scores and their impacts on you, think about how you can achieve excellent credit scores. To read more about keeping your credit-related affairs in order, follow our credit monitoring blog.