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What is a Credit Score?

Last Updated: December 3, 2024

13 min read

Table of contents

Key points:

Your credit score helps determine whether you qualify for credit cards, home loans, and other forms of credit.
FICO® Scores are calculated from the data on your credit reports at the three major credit bureaus using mathematical algorithms, which are called credit scoring models.
Most FICO® Credit Scores range from 300 to 850; the higher the score, the better.

When you apply for credit, whether for credit cards, an auto loan, or even a home mortgage, one factor may come up again and again—your credit score. This three-digit figure can have a significant impact on your financial life. High scores may help you qualify for lower interest rates, better loan terms, and more credit options, while low scores can prevent you from obtaining credit at all.

By understanding how your credit score is calculated, you can take actions that may help your score and avoid the missteps that can hurt it.

What is a credit score?

A credit score is a three-digit number that financial institutions use to estimate your future credit behavior based on your previous credit habits, according to the Consumer Financial Protection Bureau.

As you use your credit card and manage loans, lenders typically report your activity to credit reporting agencies or credit bureaus. That information goes into your credit report, which determines your credit score.

Why do credit scores matter?

When a company decides to give you credit, they’re giving you money with conditions that determine how you’ll pay it back. They decide whether they can give you money based on your credit score and credit history—because this is how they estimate your ability or likelihood of repaying their credit.

Lenders–and others, such as landlords–view your credit score as one sign of your financial capability.

A good credit score can enable you to obtain a credit card, loan, or even rent an apartment. With a higher score, you may qualify for a lower interest rate on a credit card, which may save you money or make it easier to repay your balance. You may also qualify for a card that offers more rewards and perks.

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Lenders might be concerned about your financial reliability if you have a lower credit score. They might deny your application, charge you more interest, or approve you for a smaller credit limit. Different creditors have different thresholds for application approval. A low credit score might make it hard to attain credit cards, bank loans, home mortgages, or even rental units.

Who’s involved in determining credit scores?

Your credit score isn’t an arbitrary number. It’s determined by a few different parties. Understanding each main player's unique role can help you better understand how your credit score works.

The main players in influencing credit score

If you make purchases, you’re a consumer. When it comes to credit scores, credit cardmembers and other borrowers are the primary “consumers”. Your spending habits are the foundation of your credit score. The way you manage your finances determines your score.

“Creditor” is just another word for “lender”. In this case, creditors are the companies or places that provide credit, like banks, credit card issuers, and credit unions. A retail store may be a creditor if it offers a line of credit to manage big purchases, like furniture. However, it may not report your card activity. Only the creditors that report information about your account activity (like balances and payments) to credit bureaus play a role in determining your credit score.

Credit bureaus are companies that gather and compile information about your credit history to create credit reports, which inform your credit scores. There are three major nationwide credit bureaus—TransUnion, Experian^®, and Equifax—and several smaller credit bureaus specializing in certain industries. A credit bureau may also sometimes be called a credit reporting agency or consumer reporting agency. Each credit bureau may receive different information from your creditors. Credit scoring models rely on information from the credit bureaus.

What’s the difference between your credit score and credit report?

Credit score and reports explained

Your credit score and credit report are related but not quite the same thing. Your score quantifies your credit risk (your likelihood of failing to uphold your obligation to repay your debts, according to the Federal Reserve) into a three-digit number. Your report, meanwhile, provides the data that informs your score based on your credit card activity.

What’s in your credit report?

The data in your credit report is made up of your financial history. USA.gov explains that the personal information that may appear in your credit report may include bill payment history, loans, current debt, bankruptcy history, and records of lawsuits.

According to the Consumer Financial Protection Bureau, you have the right to one free credit report from each of the three major credit reporting agencies every year. However, each national credit reporting agency now allows consumers to check their credit report once per week for free, according to the FTC. This offering can give you much more visibility into your credit habits, including any problems.

What are the credit scoring models?

Credit bureaus use algorithms to transform the information from your credit report into an easily understood number. Those algorithms are called credit scoring models. There are two major scoring models in the United States, as well as other smaller models. While they serve the same purpose, they all calculate scores differently. That’s why you may notice differences between your credit scores.

FICO® Score

The Fair Isaac Corporation (FICO^®) created the most common credit scoring model, the FICO Score. 90% of top lenders use FICO^® Credit Scores, including Discover.¹ There are several versions of the FICO^® Score with different calculations. Lenders may not always use the most recent version, depending on their priorities. FICO^® uses the following tiers, which will be discussed in more detail below:

Exceptional credit
Very good credit
Good credit
Fair credit
Poor credit

VantageScore®

VantageScore is the other major credit scoring model used in the United States. It’s similar to FICO^® but weighs certain factors, like credit history, differently. VantageScore also uses a slightly different scoring range than FICO^®:

Excellent credit
Good credit
Fair credit
Poor credit
Very poor credit

FICO® Credit Score Ranges

Perfect FICO(R) credit score and how a hard inquiry can impact it

Most FICO^® Credit Scores range from 300 to 850, according to FICO^® —the higher your score, the better. Obviously, scores in the “exceptional” range leave a positive impression on lenders, while scores in the “poor” range may need some attention. But understanding the details of what each range means and where you might fit can help you understand the offers you may qualify for.

Any score above 800 is considered excellent credit. People with these credit scores may qualify for the best interest rates.

Creditors consider people who fall into this category very dependable borrowers. They’re rarely late with payments and make responsible choices about their debt.

Consumers in this credit score range may have had small issues in their payment history, such as a late payment, or they may not have a very robust credit history. They’re still considered reliable borrowers.

Consumers here may have at least one late payment and/or have high levels of credit card debt. In the fair credit score range, consumers may find themselves paying higher interest rates on credit and debt.

An individual with a poor credit score has likely made multiple late payments or even defaulted on a loan. Someone with a score of 579 or less may be denied credit altogether.

You can’t have a credit score of 0. The lowest FICO^® Score is 300.

How credit scores are calculated

FICO assesses the following factors to determine your credit score. By understanding these categories, you can practice habits that help you build and maintain your credit history.

Learn how credit scores work

Your payment history is your record of making payments on time and whether you’ve missed any payments. Late and missed payments may negatively impact your score, while on-time payments have a positive impact.

Your score also includes the amount of credit you’re using compared to the total amount of credit you’ve been provided. For example, if you have an account balance of $4,000 on a credit card with a credit limit of $10,000, you’re using 40% of your available credit for that card. This calculation is applied to all of your credit accounts. The total portion of your available credit in use at a given time is called your credit utilization ratio. A lower credit utilization ratio is generally better for your credit score because creditors may think that someone using a large percentage of their available credit is having financial trouble.

The length of your credit history refers to the age of your oldest credit account and the average age of all your accounts. Creditors and lenders want to see that you’ve had experience using credit and that you’ve maintained a credit card or made good on a loan over the long term.

Your credit mix refers to the variety of types of credit that you use, including credit cards, car loans, a personal loan, mortgages, and more. Managing a mix of credit types can show that you’re a more responsible borrower and help your credit scores.

When you’re interested in obtaining new or additional credit, and you apply to a creditor, they'll request your credit report and score. This is called a hard inquiry. If you have too many hard inquiries in a short period of time, it can suggest you’re seeking a lot of new credit, which may hurt your overall score.

Staying on top of your credit score

Because your credit score is so central to your financial well-being, it’s important to stay on top of your score by practicing responsible habits:

Read your credit reports carefully

A small error in your credit report can have a significant impact on your credit score. For example, if your report says that you missed a payment months after you’ve paid your bill, your payment history could take a big blow. A negative payment history may badly damage your score. The sooner you notice and dispute an error, the sooner a credit bureau can correct it and repair your credit score.

Reviewing your credit reports can also help you identify areas you can work to improve, like paying on time or keeping your balances low. With more insight into your credit file, you can make informed, thoughtful decisions.

Charge only what you can afford

A credit card can help you manage your money by giving you a way to pay for something without having cash on hand. For example, maybe you need to buy groceries a couple of days before your paycheck hits your checking account. You can use your credit card and then repay the balance when you get paid. However, if you begin using your card for expensive purchases without a plan to pay them off, you may find yourself in credit card debt.

An unmanageable balance can take a toll on your credit score as you struggle to keep up with payments. By either charging only what you can quickly repay with cash or developing a budget to stay on top of larger purchases, you can help protect your credit score.

Take advantage of payment alerts and autopay

Remembering to pay your credit card bill isn’t always easy, especially if you’re juggling multiple major monthly expenses. If you struggle to remember your due date, don’t panic. Your credit card issuer may offer tools that can help. Some credit card companies allow you to set up alerts that let you know when your payment due date is approaching. Even if a card issuer doesn’t offer these tools, you can likely set your own reminders on your phone or computer.

You may also be able to enroll in automatic bill pay (or autopay), which takes funds from a checking account or savings account automatically each month. That way, even if you forget, you never miss a payment. If you enroll in autopay, make sure you always have adequate funds in your linked account to avoid overdrawing.

Build credit history with a secured credit card or a student credit card

If you don’t have a credit score, or if your score is lower than you’d like it to be, you may have options. Several tools can help you build credit with responsible use.²

Secured credit card

Credit card issuers typically don’t require a credit score for secured credit cards. Instead, a cardmember must provide a security deposit, which will equal the card’s credit limit. If you don’t repay your balance, the credit card issuer can use that deposit to cover the amount before closing your account.

You can use a secured card like any other credit card—make purchases within your credit limit and make payments each month. As you use your card responsibly, you may establish a credit score. With Discover, you can get your deposit back after 6 consecutive on-time payments and maintaining good status on all your credit accounts.⁴

Student credit card

College students who are just beginning their credit journey may consider a student credit card. These cards are designed for those with limited credit history to start developing healthy credit habits. No credit score required to apply for Discover Student credit cards.⁵ Student credit cards may have lower credit limits than traditional cards, which may help you avoid overspending as you learn how to manage credit.

Did you know?

You don’t necessarily have to forgo credit card rewards as you begin building your credit history. With Discover, you can earn cash back when you shop with a secured credit card or a student credit card.

Learn More

By keeping an eye on your credit score, you can identify any problems quickly and shut down identity theft to keep your credit safe. Of course, you can stay on top of your score manually by checking your credit reports often and reading all your statements closely. However, credit monitoring tools may help by alerting you to changes in your credit reports, like new accounts in your name. For Discover^® Cardmembers, we’ll alert you if we find your Social Security number on any of thousands of Dark Web sites, or if any new credit inquiries or accounts are opened in your name on your Experian^® credit report. Activate for free.⁶

Your credit score is an important indicator of your financial health and a tool that can help you access the credit you need. By understanding how it works and what you can do to impact it, you may put yourself on the path to better credit.

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FICO^® Credit Score Terms: Your FICO^® Credit Score, key factors and other credit information are based on data from TransUnion^® and may be different from other credit scores and other credit information provided by different bureaus. This information is intended for and only provided to Primary account holders who have an available score. See Discover.com/FICO about the availability of your score. Your score, key factors and other credit information are available on Discover.com and cardmembers are also provided a score on statements. Customers will see up to a year of recent scores online. Discover and other lenders may use different inputs, such as FICO^® Credit Scores, other credit scores and more information in credit decisions. This benefit may change or end in the future. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.

Discover Financial Services and Fair Isaac are not credit repair organizations as defined under federal law or state law, including the Credit Repair Organizations Act. Discover Financial Services and Fair Isaac do not provide “credit repair” services or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating.
Build credit with responsible use(Secured): Discover reports your credit history to the three major credit bureaus so it can help build/rebuild your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build/rebuild credit.
There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.
Getting your deposit back: Monthly reviews start your seventh month as a customer. We will refund your security deposit if you have made all payments on time for the last six consecutive billing cycles on all your Discover accounts including any loans, and you've remained in "good status" on all credit accounts you are responsible for whether they are Discover accounts or not. "Good status" means: (1) your credit report shows no delinquencies, charge-offs, repossessions, or bankruptcies for the six months prior to our review; and (2) your Discover secured card is not in a prohibited status at the time of our review, including, but not limited to: closed, revoked, suspended, subject to tax levy, garnishment, deceased, lost/stolen, or fraud. Monthly reviews may be delayed if you change your payment due date. We typically process your refund in 2-3 business days based on your delivery preference. If you close your account and pay in full, we'll return your deposit within two billing cycles plus ten days.
No Credit Score Required: Based on the preceding 12 months of Discover Student credit card application data, applicants without a credit score may qualify. You must meet other applicable underwriting criteria. When we evaluate your creditworthiness, we consider all the information you provide on your application, your credit report, and other information. If you have a credit score, we may use that in our evaluation. Not having a credit record may impact your approval odds.
Discover^® Identity Alerts (Alerts) are offered by Discover Bank at no cost, are available only online, and do not impact your credit score. The Alerts currently provide: (a) daily monitoring of your Experian^® credit report and an alert when a new inquiry or account is listed on your report; (b) daily monitoring of thousands of Dark Web sites known for revealing personal information and an alert if your Social Security Number is found on such a website. Alerts are only provided to Primary cardmembers who agree to receive them online and whose accounts are open, in good standing, have a Social Security Number, and an email address on file. This benefit may change or end in the future. Discover Bank is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. To see a list of Frequently Asked Questions, visit discover.com/freealerts.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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