What Is Credit Score?
A credit score is a three-digit number that represents your creditworthiness. Learn how credit scores work, what's a good score, and how to improve yours.
Definition
A credit score is a three-digit number, typically ranging from 300 to 850, that represents how likely you are to repay borrowed money. Lenders, landlords, and even some employers use your credit score to evaluate your financial reliability. The most widely used scoring model is FICO, which grades you based on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
FICO scores are categorized as: Poor (300-579), Fair (580-669), Good (670-739), Very Good (740-799), and Exceptional (800-850). The higher your score, the better interest rates you qualify for on mortgages, car loans, and credit cards. The difference between a 650 and 780 credit score can save you tens of thousands of dollars in interest over the life of a mortgage.
There are actually multiple credit scores. FICO has many versions, and VantageScore is a competing model. Each of the three credit bureaus (Equifax, Experian, TransUnion) may have slightly different data, producing slightly different scores. The differences are usually small, but it is why your score might vary depending on where you check it.
Real-World Example
Two people apply for a $300,000 30-year mortgage. Person A has a 760 credit score and qualifies for a 6.0% rate -- monthly payment of $1,799 and total interest of $347,000. Person B has a 620 score and gets 7.5% -- monthly payment of $2,098 and total interest of $455,000. Person B pays $108,000 more over the life of the loan because of a lower credit score. That is the real cost of bad credit.
Why It Matters
Your credit score is one of the most consequential numbers in your financial life. It affects the interest rates you pay on every type of borrowing, whether landlords approve your rental application, your insurance premiums in many states, and even some job applications. The good news is that credit scores are entirely within your control -- pay bills on time, keep balances low, and avoid opening too many accounts. There are no shortcuts, but the formula is straightforward.
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Frequently Asked Questions
What is a good credit score?
A FICO score of 670-739 is considered Good. 740-799 is Very Good. 800+ is Exceptional. For the best interest rates on mortgages and loans, aim for 740+. Most people can achieve this with consistent on-time payments and low credit utilization.
How do I check my credit score for free?
Many banks and credit card companies display your FICO score for free. You can also get free scores from Credit Karma (VantageScore) and AnnualCreditReport.com provides free credit reports from all three bureaus.
How long does it take to improve a credit score?
Small improvements can happen in 30-60 days (like paying down a credit card). Significant improvement typically takes 6-12 months of consistent positive behavior. Negative marks (late payments, collections) stay on your report for 7 years.
Does checking my credit score lower it?
No. Checking your own score is a 'soft inquiry' and does not affect it. Only 'hard inquiries' (when a lender checks your credit for a loan or credit card application) can lower your score slightly, typically by 5-10 points temporarily.
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