What Does My Credit Score Mean

Okay, you’ve looked up your credit score. What exactly does it mean though? Is it good or bad? How do you get a better number? Let’s demystify credit scores!

The Basics

A credit score is a three-digit number that is calculated based on your credit history. It essentially answers the question, “If I give you a loan, how likely are you to pay it back?”. The higher your score, the easier it will be for you to qualify for loans and better interest rates. The lower your score, the more likely lenders might see you as a risk.

Key Factors

Your credit score is based on several factors including the following.

• Your payment history: Having a history of making on-time payments will improve your score.  Having missed payments, accounts that go to collections and filing for bankruptcy will drag down your score.
• Credit utilization rate: This is your balance in relation to your credit limit. It is best to use less than 30% of the credit available to you.
• Length of credit history: This takes into consideration your oldest credit account and the average age of your credit. The longer your history, the better. That is why you might want to keep credit cards open even if you aren’t using them (provided they don’t have annual fees).
• New credit: When you apply for a new line of credit, lenders usually do a hard inquiry which will cause a small decrease in your credit score.
• Credit mix: Having a mix of revolving accounts like credit cards or a Home Equity Line of Credit (HELOC) and installment accounts like auto loans or a mortgage can strengthen your score.

Credit Score Ranges

Let’s get to the part you really want to know—is your credit score good or bad? There are different scoring models, but two of the most popular are FICO and VantageScore. Both span a range of 300-850, but their breakdowns vary.

Here are the FICO credit score ranges:

• Exceptional: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579

Here are the VantageScore credit score ranges:

• Excellent: 781-850
• Good: 661-780
• Fair: 601-660
• Poor: 500-600
• Very Poor: 300-499

Why it Matters

Building good credit will help you qualify for loans like a mortgage or auto loan as well as for credit cards. It can also impact the amount of credit and the interest rate you’re offered. Plus, landlords may use it to assess if you’ll be reliable to pay your monthly rent and insurance companies can use it to determine your premiums. By using credit responsibly, you can improve your score and financial opportunities.