A credit score is a number, usually between 300 and 850, that provides a snapshot of a consumer’s creditworthiness. Lenders use these scores to determine whether a potential borrower qualifies for a loan and, in many cases, to determine the interest rate and other terms. By tracking and keeping the score in the good or better range, consumers may qualify for a Best rewards credit cards and other loans.
What is a good credit score?
Two companies control the market for credit scores: Fico (Opens in a new tab) And vantagescore (Opens in a new tab). FICO considers a score from 670 to 739 to be good, while VantageScore considers a score from 661 to 780 to be good. Fico (Opens in a new tab) It boasts that 90% of major lenders base their score on it, and consumers generally need to focus on their FICO score first. However, credit card companies often consider both FICO and VantageScores.
How do you measure up to other borrowers?
The average US FICO score was 716 in 2022. As the chart below shows, about 67% of US consumers have a good credit score, or better, according to Experian (Opens in a new tab). About 20% of adults in the United States are “invisible” or “uncheckable,” meaning they have no or little credit history and, as a result, no credit score.
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The most recent versions of the VantageScore also use a scale from 300 to 850, with about 61% of Americans having a Good VantageScore or better.
How do you check your credit score?
Many banks and credit card issuers offer free FICO scores each month to customers, so take a look at your online account. Experian, one of the three major credit bureaus, provides a free score and credit report at www.freecreditscore.com (Opens in a new tab). To check your VantageScore, sign up for Chase Bank’s free credit monitoring service, credit trip (Opens in a new tab)Or see other programs that you offer vantagescore (Opens in a new tab) partners.
Check your credit score Using FICO or Vantage, called a “soft pull,” won’t hurt your credit score. But when you apply for a credit card or loan, the lender will perform a “hard pull,” running a report that will temporarily lower your credit score. This is why it is so important to know your credit score before applying for a loan or card. If you apply for a few credit cards and get rejected, for example, your credit score will be lower and it will be harder to qualify for a new card until some time has passed and your credit score has recovered.
Why do I have more than one credit score?
There are countless factors that determine your credit score. FICO and VantageScore base their algorithms on the same underlying data but assign different weights to the same criteria. FICO and VantageScore obtain this data in turn from three credit bureaus that track your credit activity: EquifaxAnd Experian And Transunion. As a result, you may see slightly different scores depending on whether the data was pulled from all three offices or just one.
The credit bureau and scoring algorithms also have different versions; Sometimes the lender uses a hit that is derived from the most recent version or relies on an older version of the algorithm. For example, after a study conducted by the Consumer Financial Protection Bureau (CFPB) in 2022, it found that the credit scores of one in five Americans are Reduced due to medical debt (Opens in a new tab)All three offices announced that they would change their credit reports To exclude some forms of medical debt.
What affects my credit score?
Across all credit reporting and scoring services, these are the most important factors that go into your credit score.
Payment history It is based on your record of paying bills on time and is the most important criterion for determining your score. Late or missed payments can significantly lower your credit score.
Credit use Reflects the amount of credit you are using relative to your credit limit. Using more than 30% of your available credit will likely lower your score.
The length of the credit history It indicates the amount of time you’ve had your accounts. A long credit history shows that you have a lot of practice in managing debt payments.
credit mix Refers to the types of credit you rely on. having both spin (mortgages and car loans) f installment Loans (credit cards) will increase your score because they show that you can handle different types of payments and terms.
new credit Accounts or apps can lower your credit score by creating a “hard draw” and lowering the average length of your credit history.
Tips to increase and protect your credit score
Pay your bills on time And if possible, pay the full amount due each month.
Keep your credit utilization lowIdeally less than 30% of your credit limit
Do not close old credit card accounts. If you’re considering closing a credit card you’ve had for many years to avoid annual fees, consider asking the card issuer to roll over the account onto a similar card without the fee. Even if you never use the card, you will maintain a long credit history.
Check your credit report and credit score periodically. Watch for incorrect information or fraudulent activity, and know How to fix your credit report If you find errors.
Once you have a good, or even excellent, credit score, don’t rest on your laurels. Good credit hygiene, such as keeping up with all your credit card or loan payments, can help you qualify for optional loans in the future.