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Table of Contents Expand. Credit Score Basics. Exceptional Credit Score: to Very Good Credit Score: to Good Credit Score: to Fair Credit Score: to Poor Credit Score: Under No Credit. The Bottom Line. Key Takeaways Credit scores are computed using a formula that considers factors such as payment history, overall debt levels, and the number of credit accounts the individual has open.
Scores can determine the interest paid on loans and also be a deciding factor on whether a request for credit is approved or declined.
A score between and suggests the individual has been consistently responsible, while scores between to are considered above average. Individuals with low credit scores, below , can take steps to improve them such as making payments on time, cutting down debt levels, and maintaining a zero balance on unused credit accounts.
If you have not yet established credit, you might want to talk to lenders about requirements for opening accounts and then establish a positive payment history.
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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Here's an overview of what credit scores are, and how to interpret your own FICO score. In a nutshell, your credit score is designed to be a numerical representation of the information in your credit report. This helps to streamline the process of applying for credit -- instead of reading through your entire credit report before making a lending decision, a lender can simply use your score to gauge your risk of default.
There are several different types of credit scores. The most common is the FICO score, followed by the Vantage Score, but there are other lesser-known scoring models as well. As long as a credit score is based on the information in your credit report, it can give you a good idea of your credit risk level. It's also important to point out that within the FICO scoring model, there are several different scores based on your credit. Each may be slightly different, and lenders can choose to use any of them or all three , so it can be smart to check them all.
In addition, it's important to be aware that there have been several updated versions of the FICO model over the years. Plus, there are FICO scores specifically designed to be used in auto lending and for credit cards. In all, you have more than two-dozen possible FICO scores. There are many different potential pieces of data that can go into your FICO score, and the specific formula used to calculate your score is a closely guarded secret. However, we do know the broad categories of information that are considered, and how much weight each one carries.
Not surprisingly, the biggest factor in your FICO score is whether you pay your bills on time or not. This category considers the payment history from credit cards, loans, mortgages, and other types of credit accounts.
What is a Bad Credit Score? How are Credit Scores Calculated? Your credit score combines everything in your credit report into a tidy, three-digit number that serves as a gauge for lenders as to where your credit stands and serves to calculate risk at a point in time. The average credit score in the US is So what does your score really mean? Scores range from about points. The average credit score in the U. Using myFico. Your credit score also impacts credit cards, auto loans, insurance rates, and more.
By the same token, if you have late or missed payments, then your credit score will factor this in, assigning you a number that signals a higher risk of default. Keep in mind that the algorithms for calculating scores change from time to time. It's important to check your credit reports and stay updated on the factors that the agency took into consideration.
They are then split into ranges, based on how low your credit score is to how high it is. Lenders use these credit score ranges as a way to quickly, consistently and objectively evaluate your potential credit risk. Lenders can then assign appropriate interest rates, fees, and payment terms on your line of credit.
Ultimately, lenders use a credit score range as a broad view of a borrower's credit history. When lenders evaluate a specific loan or credit application, they are more likely to dig into the distinct details of a borrower's full credit report and credit history before they approve or deny the application. Borrowers with exceptional credit are likely to gain approval for almost any credit card. Borrowers with credit scores in the excellent credit range likely haven't missed a payment in the past seven years.
They also likely have a diverse mix of credit; demonstrating that many different lenders are comfortable extending credit to them. Lenders often call people in this category "prime" borrowers. Borrowers with "good" credit scores will likely have a good range of credit card and loan types available to them. Moving up to the "very good" range could mean saving more money in interest costs over the life of the debt. If you currently have a credit score below the "good" rating, you may be labeled as a subprime borrower, which can significantly limit your ability to find attractive loans or lines of credit.
If you want to get into the "good" range, start by requesting your credit report to see if there are any errors. Going over your report will reveal what's hurting your score, and guide you on what you need to do to build it. The average VantageScore for U.
Borrowers within the "fair" credit score which considers factors like a delinquent payment history or poor credit utilization may push interest rates higher for their lines of credit.
Borrowers in this range may incur higher charges associated with a loan or line of credit. It may be difficult to obtain a year mortgage at the lower end of this range and you may expect higher interest rates.
If you are trying to get your credit score into the "fair" range, pull your credit report and examine your history.
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