What is a Credit Score?
A credit score is a three-digit number that gives lenders an idea of how likely you are to pay back a loan on time. Your credit score is calculated based on your credit history and other factors like how much debt you have and how long you’ve had credit.
Credit scores generally range from 300 to 850, with a higher score being better. A good credit score is typically above 670, a very good score is above 740, and an excellent score is over 800. On the other hand, a poor credit score is below 579.
Your credit score is important because lenders, like banks and credit card companies, use it to decide whether to give you credit and at what interest rate. The higher your credit score, the more likely you are to be approved for loans and credit cards with better terms.
Why Check Your Credit Score?
There are a few key reasons why you should check your credit score regularly:
- Monitor your financial health – Your credit score gives you a snapshot of your current credit health. Checking it regularly helps you spot any suspicious activity or errors early.
- Apply for credit – Knowing your score ahead of time allows you to determine your chances of approval before applying for loans or credit cards.
- Get better rates – A higher score makes you eligible for the best interest rates and terms on credit products.
- Lower insurance premiums – Many insurance companies use credit-based insurance scores to set premiums. A good score can lower your rates.
- Rent an apartment – Landlords often check applicants’ credit scores to determine eligibility and set security deposits.
- Negotiate bills – You may be able to negotiate bills and lower interest rates with creditors if you maintain a solid credit score.
- Identify theft protection – Monitoring your credit score helps you detect any suspicious activity like accounts you didn’t open.
Checking your credit score frequently allows you to catch problems early and take steps to improve it over time.
How to Get Your Credit Score
There are several ways to check your credit score. Here are some options:
1. Get your free credit report
The Fair Credit Reporting Act (FCRA) requires each of the three major credit bureaus – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report every 12 months if you request it. You can get your free reports from AnnualCreditReport.com.
While these reports don’t include your exact credit score, they do show your credit history, including:
- Account payment information
- Outstanding debt
- Credit inquiries
- Public records like bankruptcies and foreclosures
Reviewing your reports is useful for identifying inaccuracies and monitoring your general credit health over time.
2. Check for free with credit card companies or banks
Many credit card issuers and banks now offer free access to your FICO credit score on your monthly statement or online account. For example:
- Discover – Discover Card members can view their FICO score for free on their statements each month.
- American Express – Online account holders can view their FICO score anytime for free.
- Chase – Chase Slate cardholders can view their free FICO score online or on their monthly statement.
- Bank of America – Customers with eligible banking accounts can view their FICO score in Online or Mobile Banking.
Check with your credit card company or bank to see if they offer complimentary credit scores.
3. Try sites like Credit Karma and Credit Sesame
There are websites like Credit Karma and Credit Sesame that provide users with free access to their credit scores and reports.
They generate a VantageScore credit score, which is a consumer scoring model similar to, but distinct from FICO scores. While not an exact FICO match, your VantageScore provides a very good indication of where your credit stands.
These services give you access to your TransUnion and Equifax credit reports, updated monthly. You can also view factors impacting your score and get alerts when changes are detected.
4. Purchase your FICO score
To get your true FICO score from all three bureaus – the type most lenders actually use – you’ll need to pay for it. Here are some options:
- MyFICO.com – Get your FICO credit scores and reports directly from the source. Plans start at $19.95/month.
- FICO.com – View your FICO credit scores from TransUnion and Equifax. Single report access starts at $19.95.
- Experian.com – Purchase your FICO credit score from Experian for $24.95.
You can also get FICO scores from lenders when applying for credit products like loans and credit cards.
What Affects Your Credit Score?
The FICO scoring model considers five main categories of information in your credit reports to calculate your score ranging between 300 and 850 points:
1. Payment history (35%)
This is the most important factor, weighing in at 35% of your total score. It measures your track record of repaying debt on time, including:
- Credit cards
- Retail accounts
- Installment loans (car, student, mortgage, etc.)
- Finance company accounts
Late payments can lower your score significantly, especially if you are more than 30 days past due. Bankruptcies, foreclosures, tax liens, wage garnishments, and judgments also impact your history.
2. Credit utilization (30%)
This refers to how much of your available credit you are using, across all accounts. It makes up 30% of your FICO score.
To improve your score:
- Use less than 30% of your total credit limits
- Try to keep individual card balances under 50% of the limit
- Pay down balances monthly to reduce utilization
High balances relative to low limits can lower your score. Having maxed out cards hurts your score the most.
3. Credit age and mix (15%)
This evaluates the age of your oldest account, average age of accounts, and mix of credit types, such as:
- Credit cards
- Retail credit
- Installment loans
- Mortgage
- Finance company loans
Older accounts demonstrate a longer positive history. New accounts may lower the average age and initially decrease your score.
4. Inquiries (10%)
When you apply for credit, the lender performs a “hard inquiry” on your report that can temporarily knock a few points off your score. Too many in a short period can have a negative impact.
5. New credit (10%)
Opening several new credit accounts in a short time can represent higher risk and negatively affect your score. Spacing out applications over time lessens the impact.
How to Improve Your Credit Score
Here are some effective ways to build your credit score over time:
- Always pay bills on time – Set up autopay or calendar reminders to avoid missed payments.
- Keep credit utilization low – Shoot to keep balances under 30% of your credit limits each month.
- Avoid closing old accounts – Keep longstanding accounts open to build a strong history.
- Limit hard inquiries – Only apply for credit when shopping for a specific need to reduce score impacts.
- Monitor your reports – Stay on top of your credit by reviewing reports regularly for accuracy.
- Diversify credit types – Having revolving, installment, and other types can improve your mix.
- Dispute errors timely – Getting mistakes removed quickly limits negative effects on your score.
With diligent credit management over time, you can rebuild and maximize your credit score. Be patient, as it takes consistent effort.
How Often to Check Credit Score
Most financial experts recommend checking your credit score two to four times per year to monitor your credit health effectively.
Here are some ideal times to review your score:
- Before applying for new credit
- After being denied credit
- When shopping for loans, credit cards, insurance, etc.
- After a late payment or financial hardship
- After addressing errors or misinformation
- After a major life event like marriage, divorce, new job, etc.
- When monitoring identity theft risks
- Before making a large purchase
Checking at regular intervals allows you to spot and address changes before they have a lasting impact. More frequent checks may be unnecessary unless you are actively working to improve your score or going through a major life change.
Some key times to avoid checking your score include:
- Right after paying down balances – Utilization improvements take time to be reflected.
- After applying for new credit – Hard inquiries can temporarily lower scores.
- After opening new accounts – Can decrease average account age temporarily.
- When no major financial changes have occurred – Unlikely to see significant score differences.
Give your score time to respond to credit management changes before checking again. Spacing out your checks avoids reacting to normal score fluctuations.
Understanding Your Credit Report
Along with monitoring your credit score, reviewing your detailed credit reports from each bureau is essential.
Here are the key sections and how to understand them:
Personal Information
– Ensure all identifying information like your name, address, Social Security number, and employment info is accurate.
Trade Lines
– Listed by creditor, these include all your credit accounts and related data like the type, opening date, status, limit or loan amount, balance, and payment history.
– Review each account to confirm it is actually yours, the status is correct, and payment history is accurate based on your records.
Inquiries
– All creditors who have requested your credit report for applications or pre-screened offers appear here. Ensure each corresponds to your applications.
Public Records
– Public record information like bankruptcies, foreclosures, tax liens, or civil judgments appear in this section. Verify nothing appears that doesn’t apply to you.
Inaccuracies must be disputed directly with each bureau. Keep records with evidence to support your claims.
Regular report reviews help identify and resolve mistakes before they do major damage.
Free Credit Report FAQs
Should I request all three credit reports?
Yes, you should check all three of your major credit reports from Equifax, Experian, and TransUnion at least once annually. Each bureau may contain different information that can impact your overall credit, so reviewing only one will not give you complete visibility. Spread out requests over the year.
Is there a truly free credit report site?
AnnualCreditReport.com is the only online source entitled by federal law to provide consumers with free credit reports from all three bureaus once per year. Other sites offering “free” reports often require subscriptions for full access.
Can I get my free reports more than once per year?
You are only guaranteed three free reports, one from each bureau, once every 12 months. You can purchase additional reports from the credit bureaus throughout the year but they may have a fee.
What’s the difference between a credit report and a credit score?
Your reports show your detailed credit history and activity while your credit scores are calculated numbers based on that information. Free reports won’t include your scores but you can purchase them separately.
Do free credit reports affect your score?
Requesting your free annual credit reports does not impact your credit score. It is considered a “soft inquiry” that is visible only to you versus lenders doing “hard inquiries” when you apply for credit.
Credit Score Ranges
Credit scores fall within standard ranges that give lenders a quick snapshot of your credit risk. Here are the score ranges and what they generally mean:
| Score Range | Meaning |
| 800-850 | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| 300-579 | Very Poor |
In most cases, you need a score of at least 670 to qualify for reasonable interest rates from lenders. Raising your score to 740+ can maximize your chances of approval for affordable credit offers.
How Lenders Use Credit Scores
Lenders like banks use credit scores to assess the risks of applicants based on their repayment history. Here’s how they typically view different score ranges:
| Credit Score | Lender Perception |
| 800-850 | Extremely low risk |
| 740-799 | Very low risk |
| 670-739 | Low risk |
| 580-669 | Medium risk |
| Below 580 | High risk |
Higher credit scores increase your chances of approval and qualify you for the best interest rates. Excellent scores over 740 will unlock the most favorable loan terms.
Poor credit scores below 580 will make it very difficult to qualify for reasonable rates since lenders see you as a high-risk borrower more likely to default.
Building your credit score can save you thousands over the life of loans and credit cards.
How to Rebuild Your Credit Score
If you have poor credit, all is not lost. Here are some tips for rebuilding your credit score:
1. Review your credit reports and dispute errors.
Removing incorrect information can give your score an immediate boost.
2. Pay all bills on time going forward.
This builds a positive payment history, which is the biggest factor in your score.
3. Pay down credit card balances.
Owing less of your limits demonstrates lower credit utilization and improves your score.
4. Limit new credit applications.
Too many hard inquiries from applying for multiple new accounts can hurt your score temporarily. Wait 6-12 months before applying again.
5. Consider secured cards to rebuild credit.
After addressing old mistakes, secured cards that require a deposit can help establish positive payment activity.
6. Become an authorized user on a spouse or family member’s credit card.
Their good standing gets reflected on your credit to demonstrate positive history.
7. Use credit builder loans.
These require on-time payments to savings as collateral before dispersing the money to establish your ability to repay debts responsibly.
Rebuilding credit takes patience and perseverance. But taking the right steps can significantly improve your score over time.
Credit Score Considerations By Age
Your credit needs and goals often vary based on your age and stage of life. Here are some key credit score tips for different age groups:
18 to 25
– Open one credit card and use responsibly to start establishing history.
– Only take out student loans you absolutely require so balances stay low.
– If you have little income, consider becoming an authorized user on a parent’s account temporarily.
– Limit hard inquiries by only applying for necessary credit to avoid too many dings.
26 to 35
– Grow credit history with another 1-2 credit cards used wisely.
– Start paying down student loan balances above monthly minimums.
– Open an installment loan if you need a car or other large purchase. Make payments on time.
– Check reports annually and dispute any errors found.
36 to 50
– Pay off credit card balances monthly to keep utilization low.
– Pay extra on installment loans whenever possible to pay them off faster.
– Consider mortgages, HELOCs or business loans only if the need fits your lifestyle.
– Check credit twice a year to catch any suspicious activity indicating identity theft.
Over 50
– Leverage excellent credit to qualify for top rates on new loans if needed.
– Consider adding your children as authorized users to help them establish history.
– Consolidate credit card debts to term loans for lower interest rates.
– Check credit reports diligently for inaccuracies that can occur more frequently with age.
Conclusion
Checking your credit score regularly and reviewing your full credit reports at least annually enables you to monitor your financial health. Catching mistakes early and addressing issues improves your credit standing over time.
With responsible credit management behaviors, you can build an excellent score that saves you money and provides access to the best credit products to fit your needs through all stages of life.
