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Credit Scores

 

Your credit score can affect whether you’ll qualify for things like credit cards, auto loans, and mortgages — and how much you’ll pay for them. Cell phone companies and companies selling auto and home insurance also use credit scores. The higher your score, the better. To improve your credit score, focus on things like paying your bills on time, paying your outstanding balances, and avoiding opening several new accounts at the same time.

 

What’s a Credit Score?

 

A credit score is a number — typically between 300-850 — that estimates how likely you are to repay a loan and make the payments on time. Credit scoring systems calculate your credit score in different ways, but the scoring system most lenders use is the FICO score.

Your credit score is based on information in your credit report. Businesses use your credit score to help decide whether to give you credit and what the terms will be — including what interest rate you’ll pay to borrow money.

A high score means you have “good” credit, which means businesses think you’re less of a financial risk. That means you’re more likely to get credit like a loan or credit card.

A low score means you have “bad” credit, which means it will be harder for you to get credit. You’re more likely to pay higher interest rates on credit that you do get.

Some insurance companies also use credit report information to help decide whether to give you insurance and what premium they’ll charge. The credit scores used by insurance companies are sometimes called “insurance scores” or “credit-based insurance scores.”

 

How Credit Scores Work

 

A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. Lenders are more likely to approve you for loans when you have a higher credit score and are more likely to decline your loan applications when you have lower scores. You can also get better interest rates when you have a higher credit score, which can save you money in the long term.

Conversely, a credit score of 700 or higher is generally viewed positively by lenders and may result in a lower interest rate. Scores greater than 800 are considered excellent. Every creditor defines its own ranges for credit scores and its own criteria for lending. Here are the general ranges for how credit scores are categorized.

  • Excellent: 800–850
  • Very Good: 740–799
  • Good: 670–739
  • Fair: 580–669
  • Poor: 300–579

 

How does a Credit Scoring System Work?

 

Credit scoring systems are complex and different. Some systems might include factors others don’t, or weigh factors differently. Here are common factors in your credit report used by credit scoring systems:

  • Have you paid your bills on time? If your credit report shows that you’ve paid bills late, had an account put in collections, or declared bankruptcy, that’s likely to negatively affect your score.
  • Are you maxed out? Many scoring systems look at the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it will probably hurt your score.
  • How long have you had credit? A short credit history may hurt your score, but paying bills on time and having low balances can offset that.
  • Did you apply for new credit lately? Each time you apply for credit, it shows as an “inquiry” on your credit report. Many scoring systems look at inquiries. If you’ve applied for too many new accounts recently, it could hurt your score. Not every inquiry is counted: for example, inquiries by creditors who are monitoring your account or making “prescreened” credit offers aren’t counted against you, and inquiries from multiple mortgage lenders in a short amount of time often count as just one inquiry.
  • How many credit accounts do you have, and what kinds of accounts are they? Having existing credit accounts can be a plus, but too many credit card accounts may hurt your score. Also, many scoring systems consider the types of credit accounts you have. For example, under some scoring systems, loans to consolidate your debt — but not loans for buying a house or car — may hurt your credit score.

Credit scoring models compare this information to the credit behavior of people with similar profiles and assign you a score. Some scoring models may use information outside of your credit report. For example, scoring models used by mortgage lenders might also consider the amount of your down payment, your total debt, and your income, among other things.

 

How Your Credit Score Is Calculated

 

The three major credit reporting agencies in the U.S. (Equifax, Experian, and TransUnion) report, update, and store consumers’ credit histories. While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Types of credit (10%)
  • New credit (10%)

 

  • Payment history: Your payment history includes whether you've paid your bills on time. It takes into account how many late payments you've had and how late they were.
  • Amounts owed: Amounts owed is the percentage of credit you've used compared to the credit available to you, which is known as credit utilization.
  • Length of credit history: Longer credit histories are considered less risky, as there is more data to determine payment history.
  • Credit mix: A variety of credit types shows lenders you can manage various types of credit. It can include installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards.
  • New credit: Lenders view new credit as a potential sign you may be desperate for credit. Too many recent applications for credit can negatively affect your credit score.

 

VantageScore

 

VantageScore is a consumer credit scoring model developed by the three nationwide credit reporting agencies (NCRAs)—Equifax®, Experian® and TransUnion®. VantageScore 3.0 is available at all three of the NCRAs, making it a reliable and consistent credit scoring model. It's also important to know that you don't only have one credit score—there are different scoring models that lead to different numbers, and the three NCRAs will often show slightly different scores based on which information is reported to them by your lenders. There are many different credit scores and credit score providers.

Understanding VantageScore Ranges

The VantageScore 3.0 credit scores ratings range from 300 to 850.

VantageScore 3.0 Score Range
748-850 EXCELLENT
716-747 VERY GOOD
661-715 GOOD
600-660 FAIR
300-599 POOR

Potential lenders and creditors look at your credit scores as one factor when deciding whether to offer you new credit. Lenders may also use your credit scores to set the interest rates and other terms for any credit they offer. But there's no “magic credit score number” that guarantees a loan approval or better interest rates and terms.

The credit score range you fall in can influence the type of credit offers, rates and terms you can receive. For example, a lot of credit card issuers require a credit score that's either "good" or excellent", which is a VantageScore of 661 or above.

Factors Influencing VantageScore 3.0 Credit Score

VantageScore 3.0 emphasizes payment history, depth of credit and utilization.

  • Payment history (40%)—Repayment behavior by paying bills on time to avoid delinquency. More recent or multiple late payments can hurt your score.
  • Depth of credit (21%)—Depth refers to the ages and types of credit accounts you have. Lenders typically prefer individuals with long-term and varied accounts.
  • Credit utilization (20%)—This refers to the percentage of your total credit used from the total credit available to you. Lenders generally see credit utilizations under 30% more favorably.
  • Balances (11%)—The total amount of recently reported balances. Keep the amounts you owe low by paying off monthly balances.
  • Recent credit (5%)—The number of recently opened credit accounts and credit inquiries.
  • Available credit (3%)—The amount of credit available to you. Lenders consider how much credit you have available. Keeping this amount high shows responsible spending.

VantageScore® 4.0 credit model?

The VantageScore® 4.0 credit scoring model is the latest variation of VantageScore's models and was released in 2017. Like other models, such as the VantageScore 3.0 model, the 4.0 version tracks credit score ranges from 300 – 850. However, the 4.0 model comes with its own nuances and advances, including those involving machine learning.

Differences between VantageScore 3.0 and 4.0 models

You may be more familiar with the VantageScore 3.0 model, as this one is more widely used than the newer 4.0 model. For example, when you receive your Experian™ credit report and a free credit score, which uses the VantageScore 3.0 model.

The 4.0 model is a newer version that includes “trend data,” which is data that gets collected about different patterns of consumers’ behavior. For example, how a person pays back their debt over a period of time. This data helps to analyze different patterns of financial behavior that can be useful for lenders, creditors and others.

How the VantageScore 3.0 and 4.0 credit scores differ

There are slight variations in the factors used by the 3.0 and 4.0 models to determine credit score. Below we'll break down these factors by model when it comes to calculating your credit score.

VantageScore
factor		 VantageScore
3.0 weight		 VantageScore
4.0 weight		 Level of influence
Payment history 40% 41% Late payments can negatively affect any credit score in a big way. For VantageScore, this factor is considered extremely influential.
Depth of credit 21% 20% Depth of credit looks at how old your credit accounts are. This factor is considered highly influential in determining VantageScore credit scores.
Credit utilization 20% 20% VantageScore models place significant weight on your credit utilization and consider it highly influential. Credit utilization is how much credit you currently use compared to the amount of credit you have available. 
Balances 11% 6% This factor looks at all credit balances you owe on all your accounts, including whether they are up-to-date or delinquent. High balances can hurt your score, but this factor is only moderately influential with VantageScore scoring models.
Recent credit 5% 11% Recent credit is considered moderately influential and considers factors like recent accounts you opened and other recent activity.
Available credit 3% 2% The available credit category accounts for available credit you have on all your accounts. While this factor isn’t very influential on your scores, having more available credit looks better overall.

 

Who uses the VantageScore 4.0 model?

Lenders sometimes use more than just one scoring model to help them assess a person’s creditworthiness. Many lenders use the 4.0 model in addition to other models, like the 3.0 model or FICO® score, to get a wider picture of the consumer. However, the consumer generally sees just one score on their credit report, oftentimes a VantageScore 3.0 or a FICO score.

Additionally, the following industries may also use the 4.0 model:

  • Auto dealerships
  • Personal loan lenders/fintech loan lenders
  • Banking institutions
  • Credit card issuers

Why use the VantageScore 4.0 model?

This model has some unique characteristics compared to other models, which can help capture a wider scope of a person’s financial behavior. For example, the model leverages machine learning to help examine credit behavior over a duration of time. 

This additional data and technology can help calculate credit scores automatically, providing lenders with the information they need to make important decisions.

What is the average score based on the new model?

According to VantageScore, Opens overlay, the average 4.0 score was 702 as of August 2024. According to Equifax®, Opens overlay, the average VantageScore 3.0 in March 2024 was 705.

Monitoring your credit score 

Because the VantageScore 4.0 model is a newer model, it’s likely that your current credit score is based on either the VantageScore 3.0 model or the FICO model. Many banks and other institutions can be slow to fully adopt newer models, but it’s possible that the 4.0 model is being used to help determine your eligibility for lines of credit, annual percentage rates (APRs) and more. 

 

How do I find out what my credit score is?

 

Unlike your free annual credit report, you often have to pay to get your credit score.

Some companies might give you a free credit score if you sign up for their paid credit monitoring service, where they check your credit report for you. If you get an offer for free credit scores, check closely to see if you’re being charged for credit monitoring.

There are four main ways to get your credit score:

  • Check your credit or loan statements.
  • Talk to a credit or housing counselor.
  • Find a credit score service. 
  • Buy your score from one of the three major credit reporting agencies: Equifax, Experian, or TransUnion.

 

Do I need to know my credit score?

 

It depends. Before you pay to get your credit score, think about whether you need it. Your credit score is based on what’s in your credit history: if you know your credit history is good, your credit score will be good. It might be interesting to know your score, but decide if you want to pay to get it. 

 

How are my credit report and credit score connected?

 

Your credit score is based on the credit history in your credit report, so it’s important to make sure your credit report is accurate. The three nationwide credit bureaus — Equifax, Experian, and TransUnion — let you get your report for free online once a week from each bureau at AnnualCreditReport.com.

You also have the legal right to get a free copy of your credit report every year from each bureau. There are three ways to get it:

AnnualCreditReport.com is the only website authorized by law to give you these free credit reports. In addition, everyone in the U.S. can get another six free credit reports from Equifax each year  at AnnualCreditReport.com.

 

What if I’m denied credit or insurance, or don’t get the terms I want?

 

Federal law gives you the right to know the reasons a creditor denied your application. In many instances, you also have the right to know why a creditor offered you less favorable terms than you applied for. Know that it’s illegal for creditors to consider certain factors like race, sex, marital status, national origin, or religion when making a credit determination.

If a business denies your application for credit or insurance (or offers you less favorable terms) because of information in your credit report, federal law says the business has to

  • give you a notice that includes, among other things, the name, address, and phone number of the credit bureau that supplied the information.
  • include your credit score in the notice if your credit score was a factor in the decision to deny you credit or to offer you terms less favorable than most other customers get.

 

How do I improve my credit score?

 

When information is updated on a borrower’s credit report, their credit score changes and can rise or fall based on new information. Here are some ways that you can improve your credit score:

  • Pay your bills on time: Six months of on-time payments are required to see a noticeable difference in your score. 
  • Increase your credit line: If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. However, it is important not to spend this amount to maintain a lower credit utilization rate. Meanwhile, try to pay down your debt.
  • Don’t close a credit card account: If you are not using a certain credit card, it is best to stop using it instead of closing the account. Depending on a card's age and credit limit, it can hurt your credit score if you close the account.
  • Work with a credit repair company: If you don’t have the time to improve your credit score, credit repair companies can negotiate with your creditors and the three credit agencies on your behalf, in exchange for a monthly fee.
  • Correct any errors on your credit report: You are entitled to one free credit report per year from each of the main credit bureaus. You can get your report through AnnualCreditReport.com. You can also hire a monitoring service to help keep your information secure.

 

What is a Good Credit Score to Have?

 

Most credit scores have a 300-850 score range. The higher the score, the lower the risk to lenders. A "good" credit score is considered to be in the 670-739 score range.

Credit Score Ranges Rating Description
<580 Poor This credit score is well below the average score of U.S. consumers and demonstrates to lenders that the borrower may be a risk.
580-669 Fair This credit score is below the average score of U.S. consumers, though many lenders will approve loans with this score.
670-739 Good This credit score is near or slightly above the average of U.S. consumers and most lenders consider this a good score.
740-799 Very Good This credit score is above the average of U.S. consumers and demonstrates to lenders that the borrower is very dependable.
800+ Exceptional This credit score is well above the average score of U.S. consumers and clearly demonstrates to lenders that the borrower is an exceptionally low risk.

While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single "cutoff score" used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.

 

What Are Credit Inquiries?

 

When you apply for credit, you authorize those lenders to ask or "inquire" for a copy of your credit report from a credit bureau. When you later check your credit report, you may notice that their credit inquiries are listed. The only inquiries that count toward your FICO Scores are the ones that result from your applications for new credit.

It's important to know that there are 2 types of credit inquiries. Soft inquiries such as viewing your own credit report will not affect your FICO Score. Hard inquiries such as actively applying for a new credit card or mortgage will affect your score. Read below to see how much hard inquiries can affect your FICO Score.

More examples of hard inquiries:

  • You go car shopping and apply for financing at the car dealership and they pull a credit report on you.
  • You get a preapproved credit card offer in the mail and respond to the offer.
  • You contact your credit card company and request a credit line increase. The company pulls a fresh credit report on you to help determine if they will grant the line increase.

More examples of soft inquiries:

  • Your bank gets an updated FICO Score on all its customers to check the credit quality of its customer base.
  • You got a new job and your employer pulled your credit report as part of its new employee screening process.

Do credit inquiries affect my FICO Score?

FICO's research shows that opening several credit accounts in a short period of time represents greater credit risk. When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO Scores can be lower as a result. Although FICO Scores only consider inquiries from the last 12 months, inquiries remain on your credit report for two years.

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most Credit Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.

How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique credit histories. In general, credit inquiries have a small impact on your FICO Scores. For most people, one additional credit inquiry will take less than five points off their FICO Scores.

For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part are only 10% of what makes up a FICO Score. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.

What to know about rate shopping

Research has indicated that FICO Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your scores while you're rate shopping.

In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.

What to remember when you are rate shopping

If you need a loan, do your rate shopping within a focused period such as 30 days. FICO Scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which the inquiries occur.

When you look for new credit, only apply for and open new credit accounts as needed. And before you apply, it's good practice to review your credit report and FICO Scores to know where you stand. Viewing our own information will not affect your FICO Scores.

As a general rule, it is OK to apply for credit when needed. Be mindful of this information so you can start the credit-seeking process with more confidence.

 

Credit Bureau Contact Information & Resources

 

Need to get in touch with one of the three major credit bureaus? Use the links and contact information below to submit disputes and fix errors on your credit reports.

Remember, even though the credit bureaus may offer free educational scores, these are not the ones your lender will most likely use. FICO® Scores are used by 90% of top lenders.

Equifax

Experian

TransUnion

Additional credit resources and links

Use the links below to learn more about credit and identity theft, discover your rights as a credit consumer, or file a credit or identity theft complaint.

The National "Do Not Call" Registry

Federal Trade Commission

ReportFraud.ftc.gov

U.S Government Identity Theft Web Site

FTC for Consumers

 

One Final Note..

 

Your credit score is a number that can have a significant impact on your financial life. If you have a good credit score, you are more likely to qualify for loans and to get better terms that can save you money. Learning what your credit score is and what goes into calculating it can help you improve it.

 

 

 

 

 

 

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Most recent revision June 30, 2025 08:08:38 PM

 

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