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What Is a Credit Score?

October 26, 20217 min read

It’s important to understand your credit score, how to check it, and how to maintain a good credit score and credit history.

It’s difficult to imagine functioning in today’s world without credit. Whether buying a car or purchasing a home, credit has become an integral part of our everyday lives. Having easy access to credit goes hand in hand with having a good credit score.

How is your credit score determined?

Your credit score is based on your past and present credit transactions. The three major credit reporting agencies (Experian, Equifax, and TransUnion) track your credit history and assign you a corresponding credit score, typically using software developed by Fair Isaac Corporation (FICO).

The most common credit score is your FICO score, a three-digit number with a range from 300-850.

What is a good credit score or FICO score?

For the most part, that depends on the lender and your particular situation. However, individuals with

  • Scores of 700 or higher are generally eligible for the most favorable terms from lenders.
  • While those with scores below 700 may have to pay more of a premium for credit.
  • Finally, individuals with scores below 620 may have trouble obtaining any credit at all.

According to Experian, in general, lenders rate your credit desirability based on where your score falls within these ranges:

Rating Credit Score Range
Exceptional 800-850
Very Good 740-799
Good 670-739
Fair 580-669
Very Poor 300-579


What negatively influences your credit score?

A number of factors could negatively affect your credit score, including:


  • A history of late payments.
    Your credit report provides information to lenders regarding your payment history over the previous 12 to 24 months. For the most part, a lender may assume that you can be trusted to make timely monthly debt payments in the future if you have done so in the past. Consequently, if you have a history of late payments and/or unpaid debts, a lender may consider you to be a high risk and turn you down for a loan.



  • Too much debt.
    Having a large amount of debt can have an impact on another important factor that affects your credit score: your debt-to-income ratio. Having a higher-than-average debt-to-income ratio could hurt your chances of obtaining new credit if a creditor believes your budget is stretched too thin, or if you’re not making progress on paying down the debt you already have.


    • Not enough good credit.You may have good credit, but you may not have a substantial credit history. As a result, you may need to build your credit history before a lender deems you worthy of taking take on additional debt.


  • Too many credit inquiries.
    Each time you apply for credit, the lender will request a copy of your credit history. The lender’s request then appears as an inquiry on your credit report. Too many inquiries in a short amount of time could be viewed negatively by a potential lender, because it may indicate that you have a history of being turned down for loans or have access to too much credit.



  • Uncorrected errors on your credit report.
    Errors on a credit report could make it difficult for a lender to accurately evaluate your creditworthiness and might result in a loan denial. If you have errors on your credit report, it’s important to take steps to correct your report, even if it doesn’t contain derogatory information.


How do I check my credit report?

Every consumer is entitled to a free credit report (although not access to a credit score) at least once a year from each of the three major credit reporting agencies, Experian, TransUnion and Equifax. Visit for more information and to request your free report. (Some agencies may provide a free report more often than once a year.) Learn more about how to check your credit score.


Borrowers with good credit are presumed to be more trustworthy and may find it easier to obtain a loan, often at a lower interest rate.”

How do I fix my credit report?

Because a mistake on your credit report can negatively impact your credit score, it’s important to monitor your credit report from each credit reporting agency on a regular basis and make sure all versions are accurate.

If you find an error on your credit report, your first step should be to contact the credit reporting agency, either online or by mail, to indicate that you are disputing information on your report. The credit reporting agency usually must investigate the dispute within 30 days of receiving it.

When disputing an error with a credit reporting agency, you should also try to resolve the issue with the creditor that submitted the inaccurate information in the first place. If the creditor corrects your information as a result of your dispute, it must notify all three credit reporting agencies to which it provided the inaccurate information.

The importance of having a good credit score

Having a good credit score is important because most lenders use credit scores to evaluate the creditworthiness of a potential borrower. Borrowers with good credit are presumed to be more trustworthy and may find it easier to obtain a loan, often at a lower interest rate. Credit scores can even be a deciding factor when buying a house or car, renting an apartment or even applying for insurance.

Broadridge Financial Solutions, accessed June 14, 2019; FTC, “Credit Scores”, accessed June 17, 2019; Experian, “What is a Good Credit Score?”, accessed June 17, 2019.


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