“Access your free credit score today!”
“Open up our credit card, and you’ll have free access to your FICO credit score!”
“Looking to improve your credit score? We’ll help!”
TV commercials and online advertisements with messages like these are abundant. But if you’re new to the world of personal finance, you might not know what a credit score is, or what terms like “credit history,” “credit report,” and “FICO score” mean.
A credit score is integral to your life — it measures your ability to manage borrowed money, and allow you the freedom to do things like take out a mortgage, open credit cards, and obtain auto insurance. If you’re in the dark on credit scores, don’t worry. We’ve got you covered. Below, we’ve answered 14 of the most common questions about credit scores.
1. What Is a Credit Score?
A credit score is a number that is used to measure your creditworthiness as a borrower. A credit score is derived from a credit report, which is a detailed account of your credit history.
Your credit report includes personal information, such as your address and Social Security number, as well as credit information, which includes your current credit cards, how much you owe on any loans that are in your name, and whether you pay your bills on time. (Tax liens used to be on credit reports but have since been removed.)
Credit reports and credit scores are generated by the three major credit bureaus, which are Equifax, Experian, and TransUnion.
2. What Is the Highest Credit Score You Can Have? What About the Lowest?
Credit scores range from 300 to 850, and therefore the highest score you can have is 850. But don’t worry if you’re far from a perfect score — only 1% of people have a perfect credit score.
Although 300 is the lowest credit score you can have, Experian notes that almost no one has a credit score this low.
3. Can You Have More Than One Credit Score?
Yes. There are many different credit scoring systems, but the two primary ones are FICO and VantageScore 3.0. These two scores are available at the three major credit bureaus.
Although these two scoring systems have the same score range (300 to 850), different information gets reported to different bureaus, so it’s highly unlikely your credit scores will be exactly the same across the two scoring systems. However, you should see a similar trend to your scores, meaning something is likely awry if you have a 620 with one and a 750 with the other.
4. How Is a Credit Score Calculated?
A credit score comprises five main areas: your payment history, your credit utilization, the length of your credit history, the types of credit you have, and your new credit and inquiries. These areas are weighed differently between the two credit scoring models.
- Payment history: 35%
- Credit utilization: 30%
- Length of credit history: 15%
- Types of credit: 10%
- New credit/inquiries: 10%
- Payment history: 40%
- Credit utilization: 20%
- Depth of credit: 21%
- Balances: 11%
- New credit/inquiries: 5%
- Available credit: 3%
5. What Is Considered a Good Credit Score?
A good credit score is typically one that is 700 or above on both scoring systems. For perspective, the average consumer in the U.S. has a FICO credit score of 704, and most scores fall somewhere between 600 and 750.
If you’re looking to figure out where exactly you fall on the FICO scale, you can reference this rating chart from Experian:
- 800–850: Exceptional Credit
- 740–799: Very Good Credit
- 670–739: Good Credit
- 580–669: Fair Credit
- 300–579: Very Poor Credit
Credit score ratings differ slightly between FICO and VantageScore. This is because the various components that factor into the score (like payment history and credit utilization) are weighed differently. If you’re looking to figure out where you fall on the VantageScore scale, take a look at these numbers:
- 750–850: Excellent Credit
- 700–749: Good Credit
- 650–699: Fair Credit
- 550–649: Poor Credit
- 300–549: Very Poor Credit
6. Does Everyone Have a Credit Score?
No. In fact, there are 45 million Americans without a credit score. Plus, having a credit report doesn’t guarantee you’ll have a credit score — there are nearly 20 million Americans who have a credit report but no credit score.
In order to get scored, you must meet certain criteria, which differs slightly between the two scoring models:
You must have one account that has been open for at least six months, as well as one account that has had recent activity reported in the past six months. (The same account can fulfill both of these requirements.)
You only need one month of account activity that has occurred at some point in the past 24 months.
7. What Credit Score Do You Start With?
If you have no credit history and you’re looking to build credit, you might be wondering what credit score you start with. It turns out you don’t start with a score at all. You have no score until your first activity gets reported, at which point you will be scored based on the 300–850 credit score range.
8. Why Did My Credit Score Drop?
If you recently saw your credit score dip and you’re not sure why, don’t worry. There are countless reasons why a credit score might drop, and it doesn’t necessarily mean you have bad credit all of a sudden. Below are some of the most common causes:
- Missed or late payments. If you forgot to make a monthly payment on your credit card, mortgage, or auto loan, your score could drop.
- Increase to credit utilization ratio. Your score could also drop if you increase your credit utilization ratio, which is the amount of available credit you use each month. For example, if you typically used $1,000 of your $3,000 credit line but recently started using $2,500 of that $3,000, your score could drop. Keep your credit card balances under a 30% credit utilization ratio if possible.
- You closed several credit cards. Closing accounts can lead to a score dropping, particularly if it negatively impacts your utilization or average age of accounts.
- You have several recent inquiries on your credit report. If you’ve been shopping around for a loan for a while, having multiple hard inquiries over a long period of time can cause your score to drop. (It’s worth noting, however, that when several credit inquiries are all within a short, set period of time, such as 45 days, they are often treated as one inquiry.)
- Paying off debts. If you recently paid off your car loan or student loans, this could negatively impact your credit report, as credit reports are largely built on demonstrating your ability to manage current outstanding credit.
9. How Often Is My Credit Score Updated?
It varies. Most creditors will report new data once a month, or every 30 days. However, not all creditors report this information at the same time. This means you could see changes to your credit report and credit score fairly often.
Keep in mind that not all of your creditors will report the exact same data to all three credit bureaus. Some will only report the information to one or two of the credit reporting agencies. This is why there will be slight variations to both your credit score and credit report, depending on who you obtain the information from.
10. How Long Does It Take to Get a Credit Score?
If you have no credit and you’ve been trying to build up your credit history to be scored, you might be eagerly awaiting your score. So how long does building credit take? It can take anywhere from three to six months to build enough credit history in order to be scored, according to Experian.
11. How Can I Access My Credit Score?
Before paying for your score or signing up with a free online service, check with some of your credit card issuers to see if they offer a free credit report. If they don’t, you can pay one of the three major credit bureaus to access it. Or, you can obtain a free copy of your credit report using any number of websites, such as FreeCreditScore.com, CreditCards.com, AnnualCreditReport.com, and CreditKarma.com.
12. Does Checking My Credit Score Damage It?
No. In credit reporting, there are both soft inquiries and hard inquiries. Hard inquiries are ones that come from lenders. You’ll likely have hard credit inquiries when shopping for a mortgage or a car loan. Soft inquiries, on the other hand, refer to when a consumer checks his or her own report or when a lender checks your credit to pre-approve you for a loan.
Although too many hard inquiries can cause a score to drop, soft inquiries will not impact your credit score.
13. How Can I Improve My Credit Score?
If your score is lower than you’d like it to be, there are myriad ways you can improve it. Below are some of the most common strategies:
- Pay your bills in full and on time. If you’re looking to improve your score, the simplest thing you can do is always make sure you pay your bills in full and on time each month. Consider setting up automatic payments so you don’t forget.
- Watch your credit utilization ratio. The ideal credit utilization ratio is around 30%. This means that if you have a credit card with a credit limit of $6,000, you shouldn’t be spending more than $2,000 each month. If your credit utilization is over 30%, consider lowering it. Or, you can always try to increase your credit limit.
- Don’t close old credit cards. If you have old credit cards sitting around that you haven’t used in months or years, it could be tempting to close them. But doing so could actually decrease your credit score. Instead, try charging a small amount, like $20 or $50, to keep these cards active.
- Check your credit report for errors. You might be surprised to learn that one in five Americans has an error on their credit report. In one study done by the Federal Trade Commission (FTC), 13% of people made a dispute on an error containing incorrect, negative information that ended up improving their credit score.
14. How Long Does It Take to Improve My Credit Score?
It largely depends on how low your credit score is and why. For example, if your score is low because you have a bankruptcy filing on your credit report, it could take several years to improve your score. If you just have a history of late payments, however, and you get back on track, you could begin seeing improvements in just a few months.
Credit scores are a key part of your financial picture. If you’re unsure about why your score is low or you need help improving it, don’t be afraid to contact a professional, such as a nonprofit credit counselor or a financial advisor. Before you know it, you’ll be well on your way to a score in the 700s.