Credit Scores
Understand how credit scores work and how to improve yours
WHAT IS A CREDIT SCORE?
A credit score is a three-digit number (typically 300-850) that represents your creditworthiness - how likely you are to repay borrowed money. Lenders use it to decide whether to approve you for credit and what interest rate to charge.
Your credit score is calculated using information from your credit report, including payment history, amounts owed, length of credit history, new credit, and types of credit used.
📊 Three Major Bureaus
Equifax, Experian, and TransUnion each calculate scores
💰 Affects Interest Rates
Better scores = lower rates = save thousands
🔍 Checked Regularly
Landlords, employers, insurers may check your score
CREDIT SCORE RANGES
300-579
Very difficult to get approved for credit. If approved, very high interest rates.
580-669
May qualify for some credit, but with higher interest rates and fees.
670-739
Qualify for most credit products with reasonable interest rates.
740-799
Excellent approval odds and access to best interest rates and terms.
800-850
Highest credit tier. Qualify for best rates and premium products.
WHAT AFFECTS YOUR CREDIT SCORE
Payment History
Whether you pay bills on time. This is the most important factor.
- Pay all bills on time, every time
- Set up automatic payments for minimum amounts
- Contact creditors immediately if you can't pay
- Consider payment plans before missing payments
Credit Utilization
How much of your available credit you're using. Keep it below 30%.
- Keep credit card balances below 30% of limit
- Pay off balances in full when possible
- Request credit limit increases (don't spend more)
- Pay multiple times per month to keep utilization low
Length of Credit History
How long you've had credit accounts open. Older is better.
- Keep old accounts open (even if not using)
- Don't close your oldest credit card
- Start building credit early
- Become an authorized user on someone's old account
Credit Mix
Having different types of credit (credit cards, loans, mortgage).
- Have a mix of revolving (credit cards) and installment (loans) credit
- Don't open accounts just for credit mix
- Natural mix is best (credit card + car loan + mortgage)
New Credit
Recent credit inquiries and new accounts. Too many can hurt.
- Limit hard inquiries (only apply when necessary)
- Space out credit applications
- Rate shopping for loans counts as one inquiry if done within 14-45 days
- Avoid opening multiple accounts quickly
HOW CREDIT SCORE AFFECTS YOU
| Category | Poor (300-579) | Good (670-739) | Excellent (740+) | Potential Savings |
|---|---|---|---|---|
| Interest Rates | 20-30%+ APR | 12-18% APR | 8-12% APR | $5,000+ over loan life |
| Credit Card Approval | Denied or secured cards only | Most cards approved | Premium cards, best rewards | Access to better products |
| Loan Approval | Denied or require co-signer | Approved with conditions | Approved, best terms | Access to credit when needed |
| Insurance Premiums | Higher premiums | Standard premiums | Lower premiums | $200-500/year |
| Rental Applications | May require larger deposit | Standard deposit | May waive deposit | Easier approval, lower costs |
THE THREE MAJOR CREDIT BUREAUS
There are three major credit bureaus in the United States: TransUnion, Experian, and Equifax. These companies collect and maintain credit information about consumers. Each bureau may have slightly different information, which is why your credit scores can vary between them.
🏢 TransUnion
Founded: 1968
Headquarters: Chicago, Illinois
What They Do:
- Collects credit information from lenders, creditors, and public records
- Maintains credit reports for over 1 billion consumers worldwide
- Provides credit scores, credit monitoring, and identity protection services
- Offers CreditView Dashboard for free credit score access
Key Features:
- Free credit score and report available through their website
- Credit alerts and monitoring services
- Dispute process for incorrect information
- Provides both VantageScore and FICO scores
💡 Tip: Check your TransUnion report at TransUnion.com or AnnualCreditReport.com
📊 Experian
Founded: 1996 (merged from TRW and CCN)
Headquarters: Costa Mesa, California
What They Do:
- Largest of the three major credit bureaus
- Maintains credit data on over 1 billion consumers globally
- Provides credit reports, scores, and business credit information
- Offers free credit score through Experian.com
Key Features:
- Free FICO Score 8 available through their website
- Experian Boost - adds utility and telecom payments to credit history
- Credit monitoring and identity theft protection
- Provides detailed credit report explanations
💡 Tip: Experian Boost can help improve your score by adding positive payment history
🔍 Equifax
Founded: 1899
Headquarters: Atlanta, Georgia
What They Do:
- Oldest of the three major credit bureaus
- Maintains credit information on over 800 million consumers
- Provides credit reports, scores, and employment verification
- Offers free credit report through AnnualCreditReport.com
Key Features:
- Free credit report available annually
- Credit monitoring and identity protection services
- Lock & Alert - freeze your credit report
- Provides both VantageScore and FICO scores
💡 Tip: All three bureaus offer free credit freezes to protect against identity theft
Why Scores Differ Between Bureaus
Your credit scores can differ between TransUnion, Experian, and Equifax because:
- Different Data: Not all lenders report to all three bureaus. Some may only report to one or two.
- Different Update Times: Bureaus update information at different times, so recent changes may appear on one before others.
- Different Scoring Models: Each bureau may use different versions of FICO or VantageScore.
- Different Information: Errors or disputes may be resolved differently at each bureau.
✅ Best Practice: Check all three reports annually at AnnualCreditReport.com to ensure accuracy
UNDERSTANDING FICO SCORES
FICO (Fair Isaac Corporation) is the most widely used credit scoring model in the United States. Created in 1989, FICO scores are used by 90% of top lenders to make credit decisions. Your FICO score is calculated using data from your credit reports at TransUnion, Experian, and Equifax.
FICO Score Versions
- FICO Score 8: Most common version, used by many credit card companies
- FICO Score 9: Newer version, treats medical debt and paid collections differently
- FICO Score 10: Latest version, considers trended data (how balances change over time)
- FICO Auto Score: Specialized for auto loans (ranges 250-900)
- FICO Bankcard Score: Specialized for credit cards (ranges 250-900)
💡 Different lenders use different FICO versions, which is why you may see different scores
FICO Score Ranges
- 300-579: Poor - Very difficult to get credit
- 580-669: Fair - May qualify but with higher rates
- 670-739: Good - Qualify for most credit with reasonable rates
- 740-799: Very Good - Excellent approval odds, best rates
- 800-850: Exceptional - Highest tier, lowest rates
💡 Most lenders use FICO scores, not VantageScore, so FICO is what matters most
How FICO Calculates Your Score
- 35% Payment History: On-time payments are crucial
- 30% Amounts Owed: Credit utilization ratio
- 15% Length of Credit History: How long you've had credit
- 10% Credit Mix: Different types of credit accounts
- 10% New Credit: Recent inquiries and new accounts
💡 Payment history and credit utilization together make up 65% of your FICO score
Where to Get Your FICO Score
- myFICO.com: Official source, costs $20-40 for all three bureaus
- Experian.com: Free FICO Score 8 (from Experian only)
- Credit Card Companies: Many offer free FICO scores on statements
- Banks: Some banks provide free FICO scores to customers
- Lenders: When you apply for credit, they may show your FICO score
💡 Free scores from apps like Credit Karma are usually VantageScore, not FICO
FICO vs VantageScore
| Feature | FICO Score | VantageScore |
|---|---|---|
| Used By | 90% of top lenders | Some lenders, free apps |
| Range | 300-850 (most versions) | 300-850 |
| Created By | Fair Isaac Corporation | All three credit bureaus |
| Weighting | Payment history 35% | Payment history 40% |
| Medical Debt | FICO 9 treats it differently | Less weight than other debt |
| Where to Get | myFICO.com (paid), some free sources | Credit Karma, Credit Sesame (free) |
✅ Important: Since most lenders use FICO, focus on improving your FICO score for credit applications
HOW TO CHECK YOUR CREDIT SCORE
HOW TO IMPROVE YOUR CREDIT SCORE
Pay Bills On Time
Payment history is 35% of your score. Set up automatic payments for at least minimum amounts. Even one late payment can hurt your score significantly.
Reduce Credit Utilization
Keep credit card balances below 30% of your credit limit (ideally below 10%). Pay off balances in full when possible. High utilization suggests you're overextended.
Don't Close Old Accounts
Length of credit history matters. Keep your oldest credit card open, even if you don't use it. Closing accounts reduces your available credit and shortens history.
Limit New Credit Applications
Each hard inquiry can lower your score by a few points. Only apply for credit when necessary. Rate shopping for loans counts as one inquiry if done within 14-45 days.
Fix Errors on Credit Report
Check your credit reports regularly for errors. Dispute incorrect information with the credit bureaus. Errors can significantly hurt your score.
Become an Authorized User
If someone with good credit adds you as an authorized user, their positive payment history can help your score. Make sure they have good credit habits.
Use Credit Responsibly
Having credit and using it responsibly shows you can manage debt. Use credit cards for regular purchases and pay them off monthly.
CREDIT SCORE MYTHS
❌ Myth: Checking Your Score Hurts It
Truth: Checking your own score is a "soft inquiry" and doesn't affect your score. Only "hard inquiries" from lenders when you apply for credit affect your score.
❌ Myth: You Need to Carry a Balance
Truth: Paying off your balance in full each month is actually better for your score. You don't need to pay interest to build credit.
❌ Myth: Closing Cards Improves Your Score
Truth: Closing cards can actually hurt your score by reducing available credit and shortening your credit history. Keep old accounts open.
❌ Myth: Income Affects Your Score
Truth: Your income is not part of your credit score calculation. However, lenders may consider income when deciding whether to approve you for credit.
❌ Myth: One Score is All You Need
Truth: You have multiple credit scores (FICO, VantageScore, different versions). Lenders may use different scores, so check multiple sources.
❌ Myth: Bad Credit is Permanent
Truth: Negative information falls off your report after 7 years (bankruptcy 10 years). You can start improving your score immediately with good habits.