As you make decisions about loans, credit cards, and even home purchases one factor will come up again and again—your credit score. This three digit figure can have a significant impact on your financial life. High scores can help give you access to 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 based on credit bureau data and what it means, you can take action that may help it. Do so and you may also open up new credit opportunities and even save some money in the process.

  1. The main players
  2. Credit score ingredients
  3. What do credit score ranges mean
  4. Credit scores and credit reports
  5. Keeping track of your credit score
  6. Debunking credit score myths

1. The main players

Before you dive into what your credit score entails, let’s discuss the parties involved.

  • Credit bureaus – There are three major credit bureaus—TransUnion, Experian, and Equifax—that collect data about consumer credit use. They create credit reports, which inform your credit scores.
  • Creditors – These are the companies that provide credit such as banks and credit card companies. They report information about your credit and financial transactions to one, two, or all three of the credit bureaus.
  • Consumers – That’s you! As you navigate your financial life, you’ll likely need credit to make larger purchases. Your individual credit score will play a big role.

2. Credit score ingredients

Your credit score is calculated at the credit bureaus using algorithms. One example is the FICO® Score from Fair Isaac Corporation. 90% of top lenders use FICO®. A FICO® Score is based on 5 predictive categories of credit bureau information, with some categories more important than others.

Your FICO® Score is comprised of:

  • Your payment history — approximately 35%
    Your track record of making payments on time and whether you’ve missed any payments. Late and missed payments negatively impact your score, while on-time payments help keep it higher.
  • Amounts Owed — approximately 30%
    Your score also takes into account your credit account balances and the amount of available credit you’re using. That’s called your credit utilization ratio.
  • Length of credit history — approximately 15%
    How long you’ve had access to credit and made use of it. Creditors and lenders want to see that you’ve had some history of applying for and using credit, and also that you’ve maintained a credit card or made good on a loan over the long-term. Less experienced borrowers may have a lower score or no score.
  • Your credit mix — approximately 10%
    The different types of credit that you use. This includes credit cards, car loans, mortgages, and more. Managing a mix of credit types can show that you’re a more responsible borrower and help your credit scores.
  • New credit — approximately 10%
    Your interest in obtaining additional credit, revealed by creditors inquiring about your credit score. Too many hard inquiries—that’s the term for third-parties inquiring about your credit—suggests you’re recently seeking a lot of new credit and can hurt your overall score.

The scores generally range from 300 to 850—the higher your score, the better. Lenders, landlords, and sometimes even employers view your credit score as an assessment of your financial capability. It can impact whether you have access to credit, and how much interest you’ll pay on credit cards, bank loans, and home mortgages.

Credit fact: Before you have a credit history, you are “credit invisible.” That means none of the credit bureaus have any information about you.

3. What do credit score ranges mean?

A perfect FICO® Credit Score is 850. However, that’s really hard to maintain, given that even one hard inquiry from a credit card company or lender can affect your score. Below are the FICO® Score ranges:

  • Exceptional—800 to 850
    • Really any score above 800 is considered excellent. People with these credit scores qualify for the best interest rates and even extra perks from rewards cards.
  • Very good—740 to 799
    • Creditors consider people that fall into this category as very dependable borrowers. They’re rarely late with payments and make responsible choices about their debt.
  • Good—670 to 739
    • Consumers in this 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.
  • Fair—580 to 669
    • Consumers here may have been dinged by at least one late payment and/or have high levels of credit card debt. With a score in the fair range, consumers may find themselves paying higher interest rates on credit and debt.
  • Poor—580 or less
    • An individual with a poor score has most likely made multiple late payments or even defaulted on a loan. People with a score of 580 or less may be denied credit altogether.

Credit fact: You can’t have a credit score of 0. The lowest score is 300.

4. Credit scores and credit reports

Your credit score and credit report are related, but not quite the same thing. As noted, your score quantifies your credit risk into a three-digit number. Your report, meanwhile, provides the data that informs your score.

Thanks to the Fair Credit Reporting Act, you have access to one free credit report from each of the three major credit reporting agencies every year. It’s a good idea to review your report at least annually. That way you can correct any errors that may be impacting your score.

You can request your report in the following ways:

Discover also offers a service to check your credit scorecard for free, you don’t even have to be a Discover cardmember and checking will never impact your credit.*

5. Keeping track of your credit score

If you’re not happy with your overall credit score, don’t fret—there are actions you can take to make it better. The effort may take some time, but increasing your score can help you access better credit in the future and even save you money. Here’s what can help:

  • Identify why your score is low
    • Request copies of your credit report and look for any errors such as a company reporting a bill paid late, but you know it was paid on time.
    • Report any mistakes. That way the credit bureaus can investigate and resolve. Corrected information on your report will factor into future score generation.
    • 5 reasons your score may be low:
      • Missed or late payments
      • Using too much of your available credit
      • Having too many hard inquiries from potential creditors
      • You closed a card, which lowers your overall available credit
      • Your creditor canceled or closed a card, which does the same
  • Prioritize on-time payments
    • Do everything you can to make your payments on-time. If you’re struggling financially, establish a budget that prioritizes paying off debt before other discretionary expenses.
    • Consider automating payments so that you don’t have to remember them.
  • Lower your credit utilization ratio
    • The lower the utilization, the better for the score.
    • If your credit ratio is high, you can adjust by asking to increase your credit limit, and then keep your spending the same. Adding new lines of credit can also help, while improving your credit mix in the process. Keep in mind that when requesting a line increase, most lenders will pull a fresh credit report, which could negatively impact your credit score.
    • A simpler approach is to charge less to your credit cards.
    • You can also pay down your bill faster. Consider making payments twice monthly, instead of once.

6. Debunking credit score myths

Even if you know the basics of what your credit score entails and how to keep it on track, there’s still a lot of misinformation flying around regarding the topic. Here’s the truth behind five credit score myths.

Myth: Credit scores are the only factor creditors consider.
Truth: While they’re important, creditors consider your credit score as part of your overall financial picture. Other information such as your income, housing costs , and other factors also come into play.

Myth: Your age, gender or race impacts your credit score.
Truth: Creditors are not allowed to base lending decisions on a borrower’s race, color, religion, national origin, sex, marital status, or age, thanks to the Equal Credit Opportunity Act and FICO® Scores don’t consider these types of information.

Myth: You need to close credit cards after you pay them off.
Truth: Your payment history stands, even if you close a card. So you won’t be able to hide late payments. However, closing an account will reduce the credit available to you and could negatively affect your utilization rate.

Myth: You can get penalized for checking your credit score.
Truth: Only hard inquiries—credit checks from outside parties—impact your credit score. Soft inquiries (those you make yourself or those associated with prescreened offers) don’t affect it.

Myth: You don’t need to check your report if you have a good track record.
Truth: Even if you’ve never missed a payment or made a mistake, you should check your credit report to ensure that it’s accurate. Errors and fraudulent use of your accounts can also impact your report.

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

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.

Credit Scorecard is provided by Discover Bank, and includes a FICO® Credit Score and other credit information. Credit Scorecard information is based on data from Experian and may differ from credit scores and credit information provided by other credit bureaus. This information is provided to you at no cost and with your consent. You must be 18 years old and a U.S. resident or a resident of America Samoa, Guam, Northern Mariana Islands, Puerto Rico or the Virgin Islands. Your Credit Scorecard will be refreshed the later of every 30-days or the next time you log in to Credit Scorecard. Discover and other lenders may use different inputs, such as a FICO® Credit Score, other credit scores and more information in credit decisions. This product may change or end in the future. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.