What is a Credit Score and How to Calculate It

Your credit score is a three-digit number that predicts how likely you are to repay a loan on time. Credit scores are calculated by analyzing your bill-paying history, current debt, number of loan accounts, credit use, and the age of your credit accounts. A good credit score plays a valuable role in getting your access to credit cards and loans. Get the answer to “What is a credit score?” and learn more about how scores are calculated below. 

What is a Credit Score?

A credit score is usually a number between 300 and 850 that tells lenders about your ability to manage credit effectively. A high credit score indicates a reliable borrower, while a low credit score may indicate poor ability to manage credit. 

300-579 Poor: A below-average credit score that indicates issuing a loan or credit card would be a risk. 

580-669 Fair: Scores in this range are still low, but some lenders may lend to fair credit borrowers.

670-739 Good: It’s much easier to get a loan or credit card with a good credit score. 

740-799 Very Good: This is an above-average score that tells lenders you’re a reliable borrower who is likely to make timely payments. 

800+ Exceptional: An exceptional score is well above average. It opens the door to the best interest rates and terms.

Your credit score changes and evolves based on your financial behavior. You can actively work to build a good credit score through good credit habits like responsible borrowing. 

How are Credit Scores Calculated?

Companies use a mathematical scoring model to determine your credit score using the information in your credit report. Your credit score is influenced by the following factors:

• Payment history
• Current unpaid debt
• Credit mix
• The age of your credit accounts
• Credit utilization (how much of your available credit you’re currently using)
• New credit inquiries
• Accounts sent to collections, foreclosures, bankruptcies and how long ago they occurred

This information becomes a series of data points for the scoring model which then calculates the appropriate credit score. The criteria above don’t all contribute equally to determining your credit score. Factors like your payment history and debts owed play a bigger role in determining your credit score compared to factors like new credit applications. Most people can improve their credit score by maintaining a positive payment history and reducing their credit card balances.

Important Facts about Credit Scores

These credit score facts may help you make better financial decisions and improve your creditworthiness.

• You don’t have just one credit score. Credit scoring models and the data points they rely on may vary. For example, FICO® Scores are the most used credit score and are calculated based on the consumer’s payment history, credit utilization and length of credit history. Other credit scoring models may rely on other factors such as trending data to make a calculation.
• Credit scores are important, but lenders also consider relevant information such as your income, assets, employment history and credit history. 
• You need at least six months of credit history to be assigned a credit score.
• Your credit score isn’t part of your credit report. Lenders usually request credit score information separately. You may be able to access your credit score for free from certain credit card companies or through paid credit score service plans and credit counselors.
• Your credit score is not set in stone. You can always work to improve it with smart financial choices.  

Disclaimer: This content is sponsored by myFICO and is provided for informational purposes only. The information shared here is not intended to serve as financial, legal, or credit-related advice. Readers are encouraged to consult with their personal financial advisors or credit professionals to assess their specific situation. To learn more about myFICO’s services, including credit scores and monitoring tools, please visit the myFICO website or reach out to a myFICO representative.