All about credit scores

Facts and tips to raise your score

A credit score is a number that credit card lenders look at when you apply for credit. The typical score range is 300 to 850 (and if you haven’t already guessed, the higher, the better).

It’s not the only number lenders look at though. They also look at your income and how much of it is already going to repay debt, among other things. 

Origins of credit scores

Credit scores come from data in your credit reports, which are records maintained by credit bureaus such as Equifax, Experian and TransUnion.

Credit scoring models (the two biggest are FICO and VantageScore) use an algorithm to calculate a number that tells would-be creditors how likely you are to repay money as agreed. If that number suggests there is little risk you won’t repay as agreed, you’re likely to be rewarded with a lower interest rate. The reverse is true, too.

Breaking down the scores

The precise formulas for credit scoring are closely held, but scores are not. Many credit cards and personal finance websites offer free scores.

Your score can fluctuate day-to-day, but it likely stays in about the same range. Here’s how VantageScore breaks it down:

 

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

 

For example, according to Experian, people with scores that are 740 or higher typically get the lowest interest rates lenders offer, and they qualify for premium credit cards. A score lower than 740, according to Experian, may or may not keep you from getting approved, but you could pay more in interest.

It’s important to note, however, that scores and ranges can vary by lender. Each lender can set its own standards, and many businesses have their own proprietary formulas that they combine with credit scores. 

There are many factors that can affect your credit score, such as your credit utilization rate, how frequently you apply for credit, and paying your bill on time. Being reported at least 30 days late on payments can cause a good score to plummet — if that happens, it could take time to recover.

Tips for raising your credit score

Younger people often have lower scores because their credit histories are shorter and they may have lower credit limits. But even if your score is low because of an early credit stumble, you can work to bring it up. Recent, positive information can help dilute the impact of a past mistake.

To speed up achieving a higher score, you could also:

  • Get added as an authorized user on a parent’s card to start building your own score.
  • Decide if a secured credit card – a card backed by collateral such as cash or other assets – would be useful.
  • Use credit lightly, preferably keeping your credit card balances at no more than 30% of your credit limits.
  • Keep credit cards open, unless you have a compelling reason to close them. As part of your credit utilization rate, ​​closing a card can damage your score.
  • Check your credit frequently. This helps you know your “normal” and how your behavior affects it. You can obtain your report for free every 12 months. Also, be sure to use the same service or tool when checking your credit score to ensure consistency.

 


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