Boost Your Credit Score
Understanding Credit Scores
What Is a Credit Score?
Think of a credit score as a financial report card. It's a three-digit number that summarizes your history of borrowing and repaying money. Lenders use this score to quickly gauge how likely you are to pay back a loan on time. A higher score suggests you're a lower-risk borrower, which can make a big difference in your financial life.
Your credit score can influence whether you get approved for a loan, a credit card, or even an apartment. It also plays a major role in determining the interest rate you'll be offered. A better score often means a lower interest rate, saving you money over the life of a loan.
The Major Scoring Models
You don't just have one single credit score. Several different companies create scoring models, but two names dominate the industry: FICO and VantageScore.
FICO Score: Created by the Fair Isaac Corporation, the FICO score is the most widely used by lenders. When you apply for a mortgage, auto loan, or credit card, there's a good chance the lender is looking at a FICO score.
VantageScore: This model was developed as a joint venture by the three major credit bureaus—Experian, Equifax, and TransUnion. It's a strong competitor to FICO and is used by many lenders and free credit-monitoring services.
While both models aim to predict your creditworthiness, they use slightly different formulas. That means your FICO score might not be exactly the same as your VantageScore. It's normal to see small variations.
Making Sense of the Numbers
Both FICO and VantageScore models typically use a range from 300 to 850. A score of 300 is the lowest possible, while 850 is considered a perfect score. Your number falls into a category that tells lenders how to view your credit risk.
| Score Range | FICO Classification | VantageScore Classification |
|---|---|---|
| 800-850 | Exceptional | Excellent |
| 740-799 | Very Good | Good |
| 670-739 | Good | Fair |
| 580-669 | Fair | Poor |
| 300-579 | Poor | Very Poor |
While the names for each tier differ slightly between the models, the principle is the same: the higher your score, the better your financial standing appears to lenders.
Who Keeps Score?
Your score isn't created out of thin air. It starts with your credit reports. Three major national credit bureaus—Equifax, Experian, and TransUnion—collect information from your lenders about your borrowing habits. This includes your credit card balances, loan payment history, and any new credit you've applied for.
Credit Bureau
noun
A company that collects and maintains individual credit information and sells it to lenders, creditors, and consumers in the form of a credit report.
Scoring models like FICO and VantageScore then use the data from your credit reports to calculate your score. Lenders—such as banks, credit unions, and credit card companies—buy these scores to help them make decisions. Some landlords, insurance companies, and utility providers may also check your credit to assess risk.
Now that you know what a credit score is and who's involved, let's test your knowledge.
What is the primary purpose of a credit score?
Which two names represent the dominant credit scoring models in the industry?
Understanding what your score means is the first step toward managing your financial health effectively.