Overview: What is a Credit Score?
Credit scores might mystify you, and that’s completely understandable. However, don’t throw your hands up just yet. It’s a good idea to know a certain amount about credit scores. Let’s distill what you need to know about credit scores so you know the hows, whats and wheres of your credit score.
Review your credit report once a year to help protect your identity, credit score and finances. We’ll show you how you can get your free annual credit report and how to review it.
Definition of a Credit Score
Put simply, everyone has a credit score, which ranges between 300 and 850. This number, personalized just for you, reports your creditworthiness, or how well you handle debt. Your account types, debt levels and repayment history, plus other factors, make up your credit score. Your credit score helps lenders determine how “trustworthy” you may prove to be when you borrow from them.
The higher your score tips toward 850, the better you will look to potential lenders. Curious about what constitutes a “good” credit score? Check out a quick rundown:
- Fair: Scores from 580 to 669
- Good: Scores from 670 to 739
- Very good: Scores from 740 to 799
- Excellent: 800 and up
What is a Credit Report?
Commonly confused with credit scores, a credit report contains information about how you use credit. Credit reports come from companies called credit reporting bureaus. (You may have heard of Equifax, TransUnion and Experian, the three largest credit reporting bureaus in the United States.) Every month, these companies collect information from your creditors (such as your mortgage lender, your landlord, your credit card company, your utility company and more). This information gets added to your credit report and showcases how well you make your payments each month.
A long history of timely payments on your credit report translates to a higher credit score. On the other hand, if your credit report contains many missed payments and high credit balances, you’ll end up with a lower credit score. You may also have a low credit score if you haven’t had a chance to build credit yet, such as when you first graduate from high school or college.