Understanding credit rating scores
VantageScore 3. Credit score ranges Bad credit, in the range, can make it difficult to qualify for credit, leaving you with few good options when you need to borrow money. Fair credit, in the range, gives you more options, but you'll likely pay higher interest and will have a limited choice of credit cards. Good credit, in the range, can give you lower interest rates and more choices. Excellent credit of and up can give you access to most rewards credit cards and the lowest interest rates offered.
What Is a Good Credit Score?
Your credit health plays a big role in your financial future. Strong credit health can help you qualify for loans with low interest rates, saving hundreds or even thousands of dollars in the long run.
On the flip side, poor credit health could turn into a hurdle that hinders your chances of getting the loan you need to buy a home, finding financing to purchase a car, or qualifying for credit cards with the best rewards and rates. The credit landscape can be complex, confusing, and it can be difficult to know where to even start.
The first step to achieving strong credit health starts with investing in understanding the ins and outs of your credit score. Learning about your credit score and the actions you can take to improve it will help you become better positioned to unlock your full credit potential and achieve your financial goals.
Your credit score is a three-digit number that sums up the information in your credit report, and many lenders use this metric as a way to determine your credit health. Credit scores are calculated by an algorithm that scoring agencies use based on information from your credit report, which includes data like your loan payment history and credit card balances.
Credit scores were designed to predict the likelihood that you can meet your payment obligations or that you will go delinquent on your payments. Most of us have multiple credit scores that are slightly different because there are multiple credit bureaus, different scoring methodologies, and your credit information is often updated at different times. Instead, keep track of the well-known scores that the majority of lenders use to qualify you for credit FICO and Vantage and understand the bigger picture — what are the key factors that impact your credit score and how are they generally weighted.
Although each scoring model is slightly different, attaining a general understanding of how credit score models work will prepare you to better understand your credit report and make changes that can help you improve your score. Credit reports are comprised of the data and information that each credit bureau collects from lenders.
There are dozens of credit bureaus in the U. Credit reports are updated on an ongoing basis based on your credit behavior and information you give to businesses and financial institutions, including credit card companies, banks, mortgage companies and other lenders.
The information in your credit report can be classified into three categories of information:. Your credit report also includes general identification about you your name, address, Social Security number, date of birth. Note that while lenders use information in your credit report to understand your credit profile, there are a number of other items beyond your credit report that they use to for credit decisioning.
Based on the Fair Credit Reporting Act FCRA , you are entitled to request a free copy of your credit report once every 12 months from each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion. To get your annual free credit report, visit AnnualCreditReport. Box , Atlanta, GA Do not contact the three nationwide credit reporting companies individually. Credit bureaus collect millions of pieces of data that scoring agencies and others crunch to create credit scores.
But how do they get all this data? When it comes to credit, financial institutions such as banks, credit card companies, and other lenders have a dual role. Most of us first think about the role they play in approving people for the credit they need. Any lenders and creditors with whom you have a trade line, loan, credit card, or other credit account, report information about your credit activity to the credit bureaus.
Scoring agencies, like FICO and VantageScore, use the information in your credit report to calculate your credit score. FICO and VantageScores range from to and incorporate five factors into the scoring model including payment history, credit utilization, average age of accounts, types of credit in use, and new credit — more on that below.
For this reason, just one or two late payments could significantly hurt your credit score. This can be damaging your credit profile and your ability to qualify for credit or get desirable rates. Paying your bills on time, every time, is one of the best things you can do for your credit score. Consider using automatic bill payments or setting up online alerts across your accounts to help keep track of your bills and remove the risk of accidentally missing a payment.
Credit utilization ratio — also known as debt-to-limit ratio — measures the amount of your overall credit card limit that you are using. Your credit card utilization ratio is calculated by dividing your total outstanding balances on all of your cards by your total credit limit.
There are several strategies for lowering your credit utilization ratio—from paying down debt to increasing your credit limit. Watch to learn all about credit utilization and how to improve it. Establishing a long credit history usually improves your credit score as long as you have a history of consistent on-time payments on your open accounts.
Factors that feed into this element of your credit score include how long all of your credit accounts have been open the age of your oldest account, the age of your newest account, and an average age of all your accounts , how long specific credit accounts have been open, and how long it has been since you used each account. Closing your first credit card will likely shorten your credit history and reduce your available credit, which could lower your credit score.
The number and the mix of credit accounts that you have in use — credit cards , auto and student loans, mortgages, and other lines of credit — all contribute to your credit score. In general, having more open credit accounts leads to a better credit score. In addition to your number of open accounts, having a diverse mix of credit across the two main categories — revolving credit and installment loans — may also improve your credit score:. Each time someone pulls your credit report — a lender, landlord, or insurer — an inquiry is documented on your credit report.
Keep in mind that there are two types of credit inquiry — hard and soft inquiries — and only hard inquiries are visible to others on your credit report and impact your credit score. One hard inquiry is unlikely to affect your score by more than a few points. However, hard inquiries can stay on your credit report for two years and many hard inquiries or opening several new lines of credit in a short period of time can be more detrimental to your score.
Lenders and businesses set their own parameters for the scoring model they want to use and what constitutes as a good credit score for a particular product or service. Taking action now to improve your credit score can help you not only qualify for credit with better rates, but may also help you avoid extra fees or deposits that are sometimes required for borrowers with lower scores. If you find that credit score is being dragged down by inaccurate information, take action to dispute the error.
Having a strong credit score can open the door to more opportunities and savings. Here are just a few examples of what a good credit score can help you achieve:.
Most people spend hours filling out paperwork and collecting information for the long loan application, but one of the key pieces of information that determines whether you qualify for a loan and what rate they can offer you is your credit score.
A good score will help you qualify, and can help you lock in the best rates which can translate to hundreds or thousands in savings. With a high credit score, you can qualify for a broader range of credit cards that reward customers with sign up bonuses, cash, points for other perks, entry to airport lounges, and more.
A great credit score can be one of the best tools to help you get a great rate on a car loan. Online loans: online lenders have emerged as an alternative to traditional financial institutions and are known for leveraging technology and data to deliver quicker loan and rate decisioning, and a simple online experience.
Online lenders like Upgrade perform soft credit checks to see if you can be pre-approved for a personal loan. A strong credit score can give you more options and better interest rates with online lenders. Insurance: a healthy credit score and credit history can often help you get a more affordable insurance premium compared to others with an average or poor credit score.
Your credit score is a way to evaluate risk and create a policy and premium at a fee that lines up with the risk level they determine. An excellent credit score can help you qualify for the best insurance policy at a great rate — giving you and your loved ones peace of mind. Cell Phone Service: one of the first steps that cell phone service providers take when deciding whether to offer you cellular service is to checking your credit history. Keys to your apartment: many landlords require running a credit check in addition to completing an apartment application.
A solid credit score could give you a step up from other apartment seekers in a competitive market. To stay on top of your payments, set up a calendar reminder or enroll in automatic payments. The on-time payment goal applies to all your bills, including utilities, rent and cell phone service.
Apply for credit under the right circumstances — when you need it and you can get affordable financing that you can repay on time, every time. Think twice before closing an old account, as closing an old account can ding your credit utilization ratio and credit history — two things that are good for your score. Scoring models consider your ability to responsibly manage different types of financing, from credit cards to secured loans like mortgages to personal loans , so you should consider diversifying your mix.
Start by getting a copy of your credit report and reviewing it closely. Credit Report Credit reports are comprised of the data and information that each credit bureau collects from lenders. The information in your credit report can be classified into three categories of information: Credit History: the number and type of opened, active and closed accounts you have credit card, auto loan, mortgage, etc.
Only hard inquiries are visible to other people, and they can impact your credit score for up to one year but will appear on your credit report for up to two years. Your everyday spending habits Note that while lenders use information in your credit report to understand your credit profile, there are a number of other items beyond your credit report that they use to for credit decisioning.
How your Credit Score is Calculated Credit bureaus collect millions of pieces of data that scoring agencies and others crunch to create credit scores. Credit Card Utilization Credit utilization ratio — also known as debt-to-limit ratio — measures the amount of your overall credit card limit that you are using. Credit Mix and Number of Accounts in Use The number and the mix of credit accounts that you have in use — credit cards , auto and student loans, mortgages, and other lines of credit — all contribute to your credit score.
In addition to your number of open accounts, having a diverse mix of credit across the two main categories — revolving credit and installment loans — may also improve your credit score: Revolving Credit: credit products such as a credit card or a home equity lines of credit HELOCs , in which you make a different payment each month depending on how much you spend or how much of your credit you use Installment Loans: loans with fixed rates and fixed payments of equal amount made over a fixed timeline 5.
Hard Credit Inquiries and New Credit Each time someone pulls your credit report — a lender, landlord, or insurer — an inquiry is documented on your credit report. Hard inquiries are typically only made with your permission. Hard inquiries are visible to anyone who accesses your credit report and they are reflected in your credit score.
When you request a copy of your own credit report, a soft inquiry is generated. Employers or landlords might also submit soft inquiries as part of their background checks. Soft inquiries can be made without your permission. They are recorded on your credit report but they are only visible to you and they are not reflected in your credit score.
Check your score regularly and review your credit report annually. Always make on-time payments. Optimize your credit utilization ratio. Leave cards open after paying them off to reduce your overall balance owed, but maintain the total limit—consequently lowering your credit utilization ratio. Just be aware that some credit cards do have annual fees, and that fee should also be considered when deciding if you should keep the account open or close it.
Request a credit limit increase on one or more of your cards but resist your desires to spend more! Note that this may result in a hard inquiry, which can temporarily lower your score a bit. Refinance high interest-rate credit cards with a personal loan that has lower rates and better terms. Consolidating multiple credit card balances into one lower interest rate loan can lower the amount of interest you owe, which allows you can pay off your debt faster.
And, if your credit cards remain open after you transfer the balance to a personal loan, your credit utilization ratio goes down — an added bonus.
Be thoughtful about taking on new debt and closing accounts. Rethink your credit mix. Late payments will usually be removed from your credit report after seven years.
Improve your credit the quickest way · Want to explore related? Understand what makes up your credit score. Many credit scores range from to Learn how to find your score, read your credit report, and understand what it means.
Your credit score is a three-digit number that relates to how likely you are to repay debt. But did you know you actually have more than one credit score? The three main credit bureaus — Equifax, Experian and TransUnion — create your credit reports, which credit scoring models like VantageScore and FICO use to come up with a score that typically ranges from The credit bureaus can also calculate scores for you based on their own proprietary models.
Your credit health plays a big role in your financial future. Strong credit health can help you qualify for loans with low interest rates, saving hundreds or even thousands of dollars in the long run.
Calculated with a formula based on variables including payment history, the number of accounts, and the amounts owed, your credit score may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Here are a few credit score basics and what various ranges of credit scores mean for your borrowing future. Your credit score is a number that represents the risk a lender takes when you borrow money.
The Complete Guide to Understanding and Improving Your Credit Score
As a result, Discover offers described on this page may be out of date. Your credit score is arguably the most important number in your financial life, and these days it's easier to check than ever. Before you apply for a new credit card, personal loan or mortgage, it's important to know your score, since it will give you insight into what products you may qualify for and what interest rates to expect. Checking your credit score doesn't hurt your credit, and even if you're not applying for credit, it's smart to get into the habit of checking it regularly. In fact, the simple act of checking your credit score is one way you can improve your credit. If you notice a dip in your score, it may alert you to potential fraud or errors on your report.
Your guide to credit score ranges
When you apply for a credit card, a loan, or insurance, lenders will check your credit score to help them decide whether to offer you credit. One of the first steps to building good credit starts with understanding credit scores, how they are determined, and why they matter. Your credit score is a number, typically ranging from to It is calculated by credit scoring models such as FICO and VantageScore using credit information reported about you by lenders, banks and other financial institutions to the three main credit bureaus—Experian, Equifax, and Transunion. Your score can also be calculated by industry-specific proprietary scoring models. You can have more than one score and they may vary, but all scores are based on the information found in your credit reports. Reviewing your credit reports regularly can help you understand what you need to do to improve your score. Your credit score can impact your ability to get a loan, a credit card, rent an apartment, and get a mortgage or auto insurance.
A credit score is a number ranging from that depicts a consumer's creditworthiness. The higher the credit score, the more attractive the borrower.
Lenders use credit scores to help assess the level of risk associated with borrowers, and some employers, landlords, and insurance companies also use them when making decisions about job applicants, potential tenants, or policyholders. When it comes to applying for a mortgage, a car loan, a credit card, or any other loan, your credit score can save you money if it is high or cost you money if it is low. Understanding your score is the first step to improving it if necessary or maintaining it if it already is healthy.
Credit Score Ranges: What Do They Mean?
For a score with a range between , a credit score of or above is generally considered good. A score of or above on the same range is considered to be excellent. Most credit scores fall between and Higher scores represent better credit decisions and can make creditors more confident that you will repay your future debts as agreed. Credit scores are used by lenders, including banks providing mortgage loans, credit card companies, and even car dealerships financing auto purchases, to make decisions about whether or not to offer your credit such as a credit card or loan and what the terms of the offer such as the interest rate or down payment will be. There are many different types of credit scores. Scores by VantageScore are also types of credit scores that are commonly used by lenders. The latest VantageScore 3. A VantageScore above is considered good, while a score above is considered excellent. Credit scores are decision-making tools that lenders use to help them anticipate how likely you are to repay your loan on time.
Credit Score
A credit score tells lenders about your creditworthiness how likely you are to pay back a loan based on your credit history. It is calculated using the information in your credit reports. Credit scores influence the credit that's available to a person and the terms interest rate, etc. It's a vital part of credit health. When lenders order a credit report, they can also request a credit score that's based on the information in the report. A credit score helps lenders evaluate a credit report.
