Understanding Credit Scores
A credit score is a rating that lenders use to help determine risk for people who borrow money. Your credit score rates how responsible you are about borrowing and repaying money. A high credit score can help you get approved by more lenders and save you money in interest because you can usually get a lower rate.
What’s in a credit score?
Credit scores are based on credit reports, which contain your credit history. The credit score is used by lenders to help predict how risky it would be for a lender to offer you more credit.
The most well-known credit score is called the FICO score, developed by the Fair Isaac Credit Organization. While each credit bureau calculates credit scores using its own unique formula, there’s no mystery to the factors that make up a credit score. MyFico.com, a division of Fair Isaac, offers helpful guidelines to explain what goes into a credit score:
- How promptly you pay = 35% of your credit score
- How much of your credit limits you use = 30% of your credit score
- So avoid exceeding or maxing out your credit limits
- How long you’ve been using credit = 15% of your credit score
- What types of credit you utilize = 10% of your credit score
- A secured credit card and high-rate finance company loan don’t do as much for your credit score as an unsecured card and low-rate auto loan
- How much you’ve borrowed recently = 10% of your credit score
- Other factors include:
- Court judgments
- Tax liens
- Number of recent credit checks
What’s a good credit score?
Credit scores typically range from 300 to 850, with the average person scoring in the low 700’s. According to MyFico.com, the median FICO score in the U.S. is 723. But over 40% of the U.S. population scores below that.
Want to learn more about your credit score?
- Get your FREE credit score through Experian®.
- Answer a few questions and let the Credit Analyzer estimate your credit risk
