Reading Your Credit Score: A Simple How-To
Assessing your credit reports is one of the many responsibilities that come with adult life— for many, understanding how to read and digest the information that a credit report contains can be difficult. If you are new to credit or are still struggling to understand the dynamics of your report, you’ve come to the right place.
Why Your Score Matters:
Lenders will use your credit scores to help assess the level of risk associated with borrowers. Employers, landlords, and insurance companies also use them when making decisions about job applicants, potential tenants, or policyholders. Therefore, your credit score is a fundamental element to various milestones in your life.
Credit reporting agencies collect and assess data to determine creditworthiness, giving you a grade that can range from 300 to 850. You are rated based on your borrowing and payment history, responsible financial handling, income, and other factors. If you have a social security number and a credit history of any kind for longer than six months, you have a credit score. The higher your score, the better your credit.
What It Means:
Some credit scoring models may use a slightly different range, but higher scores are always better. In general, credit scores fall in the following range:
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- Above 750: excellent credit
- 700–750: good credit
- 650–700: fair credit
- 600–650: bad credit
- Below 600: poor credit
A FICO Score and a VantageScore:
A FICO score is the most commonly used credit score and helps lenders to make smarter, quicker decisions about who they loan money to. It also helps people obtain fair and fast access to credit when they need it. FICO Scores are calculated based on your credit information. You can influence your score by paying bills on time, not carrying too much debt, and making smart credit choices.
Another number that banks and credit card companies look at is your VantageScore. Your VantageScore is used as a risk score that helps lenders determine your creditworthiness. This rating system is less influential and was developed by the three major credit bureaus (Experian, TransUnion, and Equifax).
Breakdown of Your Credit Score:
The apparent culprits that can reduce your credit score include not paying your bills on time, judgments or collections, and high debt levels.
Payment history (35%)
Payment history includes previous payments on loans and credit cards, including the number and severity of late payments.
Amounts owed (30%)
If you are using a high percentage of your available credit, this may indicate that you are overextended—banks can interpret this to mean that you may be at a higher risk of default on your loan.
Length of credit history (15%)
Longer credit history increases your scores. However, even people who have not been using credit for long may have high scores, depending on how the rest of their credit report looks.
Credit mix (10%)
Your score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.
New credit (10%)
Try not to open too many accounts within a short period. Opening new accounts in a short period of time can represent greater risk, especially for those who do not have an established credit history.
Getting Your Credit Score
You can order your credit score—which is based on information from your credit report—from various sources. Some banks, credit unions, and credit card issuers make your credit score available to you either on your billing statement or online. You can also purchase your full credit report from any of the major credit bureaus at any time—Equifax, Experian, and TransUnion. These bureaus also provide one free credit report per year.
