What Is a Credit Score

Overview

Your credit score is essentially a financial report card. It summarizes your entire credit history into a single number that lenders can quickly evaluate. A higher score means lower risk to the lender, which translates to better loan terms and lower interest rates for you. A lower score can mean higher interest rates, lower credit limits, or outright denial.

How Credit Scores Are Calculated

The FICO model, the most widely used scoring system, weighs five factors:

• Payment history (35%): Whether you've paid past credit accounts on time. Even one 30-day late payment can significantly lower your score.
• Amounts owed / Credit utilization (30%): How much of your available credit you're using. Keeping utilization below 30% is good; below 10% is ideal.
• Length of credit history (15%): How long your credit accounts have been open. Older accounts help your score.
• Credit mix (10%): Having a variety of credit types (credit cards, auto loans, mortgage) shows you can manage different kinds of debt.
• New credit (10%): Opening several new accounts in a short period can lower your score temporarily.

Score Ranges

• 800–850: Exceptional
• 740–799: Very Good — qualifies for best rates
• 670–739: Good — considered acceptable by most lenders
• 580–669: Fair — subprime territory, higher interest rates
• 300–579: Poor — difficulty getting approved for credit

How to Improve Your Score

Pay all bills on time (set up autopay), keep credit card balances low, don't close old accounts, limit new credit applications, and check your credit report regularly for errors at annualcreditreport.com (free weekly access).