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What is a credit score? A complete beginner's guide to understanding credit

If you're asking yourself, "what is a credit score?" or "what is the credit score range?", it's time to get educated.

Have you recently been rejected after applying for a credit card, and you're still trying to figure out why? (Ignore the whole "this is just like what happened with my ex-factor...not getting the credit you want just plain stinks.) Or, are you planning on getting a loan soon and are unsure what your credit situation looks like? There's no shame in having little to no knowledge about credit. After all, instead of teaching everyday skills like taxes and credit, high school taught us the Pythagorean theorem. Seems legit.

Credit is important and probably impacts you in more ways than you realize. The good news is we're here to help with this beginner's guide to understanding credit.

What is a credit score?

Your credit score is a number attributed to you based on information provided by your lenders in your credit report. The number speaks to your creditworthiness as a borrower.

In other words, your credit score is like a grade you've been given that says how reliable you are when you borrow money. As much as it sucks to feel like your entire being has been dwindled down to a number, this number says a lot about you to those pesky lenders you'll probably need at some point.

When you apply for credit, lenders use your credit score to determine if they should approve or deny you, what interest rate to give you, and what borrowing terms to provide you.

Now, here's where things can get a little tricky. You have more than one credit score attached to your profile. In the United States, there are two main credit scoring models, FICO and VantageScore. So, every consumer has both a FICO and VantageScore credit score. These numbers are rarely the same, but they should be similar.

When you apply for credit with a new lender, you won't necessarily know which credit score they'll pull. For this reason, keep an eye on both credit scores.

Why is a credit score important?

So, why should you care about the world of credit, and why is your credit score important? Your credit score can cost or save you money. A person with a higher credit score gets their loans accepted more often and faster and has access to lower interest rates and better borrowing terms. Simply put, a strong credit score gives you more financial opportunities.

Let's look at some real-world examples:

  • People with solid credit get access to credit cards with better rewards.

  • Someone with good credit can get approved for a business or personal loan when needed.

  • An individual with healthy credit can get a lower interest rate.

  • Some car insurance companies use credit scores to determine rates.

  • People with good credit get approved for higher limits on credit cards and loans.

  • A healthy credit score plays a significant role in getting approved for a mortgage.

  • Some utility companies won't ask for a security deposit if your credit score is high.

What's even more surprising is that your credit score can also influence other non-money-related areas of your life. Landlords and property management groups sometimes run a credit check on tenants and won't rent to individuals with poor credit. Some employers check credit scores and pass on candidates with bad credit. So, if you don't take care of your credit, it can cost you a job or lease. Ouch.

How to view my credit score

Most major banks give you the option to view your credit score in their online banking app. If your bank doesn't offer this option, you can also pay one of the three major credit bureaus (Experian, Equifax, and TransUnion) to view your score, or check it for free using a site like (by Experian).

Credit score vs. credit report

Before we dive further into the details of your credit score, it's important to differentiate between a credit report and a credit score.

Your credit report is a summary of all the information sent to the credit bureaus from your lenders. It includes:

  • Identifying data, such as name, SSN, address, and date of birth

  • Credit account information includes account balances, payment history, type of account, and date opened.

  • Soft and hard inquiries into your credit

A credit score is a three-digit number that represents your risk from a credit perspective. Private companies like FICO and VantageScore create models that use the information contained in your credit report to come up with a score of your credit risk.

What is the credit score range?

At this point, you’re probably wondering what’s considered a good credit score. Well, both FICO and VantageScore have broken down their credit score ranges into clear rankings. Both models have a range from 300 to 850.


  • Poor: 300-579

  • Fair: 580-669

  • Good: 670-739

  • Very Good: 740-799

  • Exceptional: 800-850

VantageScore (from Transunion)

  • Very Poor: 300-600

  • Poor: 601-657

  • Fair: 658-719

  • Good: 720-780

  • Excellent: 781-850

As you can see, it can make quite a difference depending on what model your lender pulls your credit score from.

What impacts your FICO credit score? 5 credit score factors

So, what goes into making up that little number that says so much about your lending habits? For FICO, it’s really five factors, all of which are weighted differently:

Payment history (35%)

Your payment history is, as it sounds, a record of if you pay your bills on time. Every time you make a late or missed payment, it's recorded in your credit report, and your credit score probably takes a hit. It might be a small drop of fewer than 10 points, but if you have enough of these, it can really add up.

And these mistakes follow you for a while. Each transgression can stay on your credit report for up to 7 years. That's 7 years of bad luck for you and your credit just because you forgot to make one bill payment.

Amounts owed (30%)

Your credit utilization is the second largest contributor to your credit score. Credit utilization is the amount of credit you have access to versus the amount you owe. Experts say you should keep your credit utilization below 30% every month to ensure it doesn't negatively impact your credit. So, if you have two credit cards with a limit of $500 each, you shouldn't spend more than $300 a month across both cards.

A mistake many people make with credit utilization is that they assume making a payment resets their utilization for the month, but that's not the case.

Let's say you spend $700 every month of the $1,000 credit limit available to you. You always pay the $700 in full and on time, so your payment history is excellent. But, even with responsible payment habits, your credit utilization is too high, and your credit score will suffer. This is because, at a 70% utilization ratio, you're considered someone who "needs" their credit too much. Lenders prefer to see that even though you have access to a lot of credit, you don't need to spend most of it.

Credit history length (15%)

Your credit history length is the average age of all your credit accounts. The older your account, the more credit history it has attached to it, and the better it is for your credit score.

Essentially, people just starting with their credit get punished in this category because they are new to credit. The good news is that, with time, this factor will improve. Just make sure you avoid closing your oldest credit account, as that can send your average credit history age down.

Credit mix (10%):

There are two main types of credit accounts: revolving credit and installment credit. Installment credit is a loan, like a mortgage or auto loan, where you receive a lump sum and make fixed monthly payments. Revolving credit is where you have access to a predetermined amount and pay it off based on your usage. Examples of revolving credit are credit cards and lines of credit.

It's most beneficial for your credit score to have both installment and revolving credit. This shows lenders that you can be responsible with money regardless of the type of loan or credit account you have.

New credit (10%)

Every time someone, including yourself, checks your credit report or credit score, it's known as an inquiry. When you use your online banking app to check your credit score for free, it's considered a "soft inquiry" and doesn't impact your score. Lenders will sometimes make a soft inquiry when giving you tentative approval.

But, almost all lenders need to make a "hard inquiry" into your credit before approving you for a new credit account. A hard inquiry impacts your score, typically lowering it by a few points. There's no need to panic, though—your score usually recovers from this dip in a few months.

Where you need to be careful is opening too much new credit in a short period. If you have multiple hard inquiries into your account in a brief period, it can send your score down drastically.

Also, there's probably no great reason to open multiple new credit accounts simultaneously. Generally speaking, try to limit yourself to one new credit account every 6 months to limit the potential impact on your score.

What impacts your VantageScore credit score? 5 credit score factors

Although VantageScore considers the same general credit history factors as FICO, they are weighted differently, meaning that there are differences in how influential each factor is in determining your score. Here are the 5 factors VantageScore considers in order of importance:

  • Total credit usage, balance and available credit: extremely influential

  • Credit mix and experience: highly influential

  • Payment history: moderately influential

  • Age of credit history: less influential

  • New accounts opened: less influential

What doesn't impact your credit score

Knowing what doesn't impact your credit score is just as beneficial as knowing what does.

Credit reports don't include information about your income, savings and checking accounts, or investments. So, people with high incomes don't always have amazing credit.

Getting married or divorced doesn't directly impact your credit, although it can have some indirect consequences when it comes to shared debts.

And remember that not all bills impact your credit. Rent, cell phone bills, and utilities usually won't contribute to your credit report or credit score.

How to increase my credit score

Now you know why credit matters and how your credit score ranks, so you're probably wondering how to increase your credit score. The good news is that credit scores aren't permanent, and no matter how bad yours is, you can always improve it.

Here are some easy ways to improve your credit score:

  • Make sure all your bills are paid on time. Set up autopay wherever possible to help you out.

  • Pay your bills in full whenever you can. If you can't pay the total amount, at least pay more than the minimum, so you make some progress in getting your debt down quickly.

  • Continue to pay down your debts until you're debt-free.

  • Find out your total available credit and ensure you have a credit utilization of at most 30%. If your credit utilization is too high, consider lowering your spending or increasing your credit limits.

  • Keep your oldest credit card open, even if you don't use it.

  • Limit the number of hard inquiries into your credit to no more than one every 6 months.

  • Get your annual free credit report and make sure there are no errors. If you find mistakes on your account, you can dispute them and have them removed.

  • Ensure you have a healthy credit mix of revolving and installment accounts.

Start today, but have patience

There's no denying that your credit is important. Even if your credit score isn’t quite where you want it to be right now, you can fix it by following the tips outlined above.

The things that help improve your credit are also great financial habits to have. Learning to pay bills on time and pay down debt are essential life skills.

One word of caution—don't expect to see a drastic difference in your credit overnight. Negative information, such as missed payments, can stay on your credit report for up to 7 years. You will have to put some time in before you have enough good to outweigh the bad.

Still, it'll all be worth it in the end…especially when you can brag about your high credit score to all your friends. Because that's a thing people do, right?


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