Jan 24, 2024

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A close-up of two hands holding a phone while the person checks their credit score..

Your credit score tells lenders about your creditworthiness—or how likely you are to pay your bills on time. That’s why lenders weigh your credit score along with other factors as they decide whether to approve you for a loan or credit card, and how much interest to charge.

Given the important role your credit score plays in your financial life, it is a good idea to check it regularly and do what you can to keep it strong.

Start by learning these important facts about your credit score, and you will be well on your way.

1. What is a credit score?

A credit score is a measure of your creditworthiness based on your credit reports. It is a three-digit number typically ranging between 300 and 850. The higher the number, the more creditworthy you are in the eyes of lenders.

2. Why is a credit score important?

Your credit score may influence whether you are approved for a loan and what interest rate you pay. Lower interest rates could save you money on the total amount you will need to pay back.

Your score may also be a factor in the size of the deposit you’re required to put down for utilities, your eligibility for cell phone plans, or whether a landlord will rent you an apartment.

3. What is a good credit score?

FICO® Scores can be divided into five ranges, commonly known as FICO® Scores* ranges. Not all credit scores are FICO® Scores; some scores are generated by other companies.

  • Exceptional — 800–850. An “exceptional” credit score is the highest rating and may qualify you for the best credit products with the lowest interest rates.
  • Very Good — 740–799. Borrowers with scores in this range are considered very dependable borrowers. Their credit reports show that they make responsible choices about their debt and are rarely late with payments.
  • Good — 670–739. Credit scores in this category indicate that the person is a reliable borrower but might not have a long credit history or might have small issues in their payment history. The average credit score of Americans is 714 and falls into this category.1
  • Fair — 580–669. A “fair” credit score might indicate to lenders that a consumer may have high levels of credit card debt or might have had difficulty in the past making payments on time. This could lead to lenders charging higher interest rates on credit and debt.
  • Poor — 300–579. A “poor” credit score may make it difficult for someone to borrow money. If a loan is approved, it may be expensive as it might carry a high interest rate.

4. How do I find out my credit score?

There are several places to check your credit score for free. Many lenders offer their customers free access to their credit scores. If you are a Discover® customer, for example, you can get your FICO® Credit Score*, plus see important details that help make up your score for free.

Credit scores can also be found by contacting nonprofit credit and housing counselors, or can be purchased through a credit score service.2

5. How does a credit score work?

Your credit score is based on five general categories. The information for each is contained in your credit reports.

  • Payment history. Your payment history is the largest factor, accounting for about 35% of your credit score. This includes a record of whether you made payments on time or if you missed any payments.
  • Amount of debt. The amount of debt you currently have is the second most important factor in your credit score. It accounts for about 30% of your score. This compares the level of debt you have with the total amount of credit you have been granted.
  • Length of credit history. How long you have had credit on your credit report is also a factor, accounting for about 15% of the score. This indicates how much experience you have using credit and for how long you have kept your accounts in good order. Remember that information about closed accounts is removed after a period of time.
  • Credit mix. The different types of credit that you have also matter. This represents about 10% of your credit score. This category might include credit cards, personal loans, car loans, mortgages, etc. Managing these different accounts may show that you handle a mix of debt responsibly.
  • New credit. When you seek to borrow, lenders are authorized to look at your credit reports. This is considered a hard credit pull. Too many hard inquiries in a short period of time may harm your score by suggesting that you need a lot of credit quickly. This category accounts for about 10% of your overall score.

6. Why does my credit score vary among lenders?

The answer depends on which credit report is used, which company calculates it, and which model is used. Experian®, Equifax®, and TransUnion® are the three main credit bureaus that provide your credit reports, which are then used to set your credit score.

The FICO® Score is the most common scoring model used by lenders, though you might also see VantageScore® or other credit scores used. FICO also has different versions of its scoring model, which can affect your score.

Because different lenders might use different credit scoring agencies, a score used by Discover® Personal Loans, for example, might not be the same as the one used by another lender.

7. How do I stay on top of my credit score?

Your credit score is calculated using various facts from your credit reports. Knowing how to manage those elements can be key to influencing your credit score.

You can do a lot to improve your credit health. Because your payment history is an important element in your credit score, developing good money habits, including paying all your bills by the due date and paying down debt, is an important step that may help your score. Keeping an eye on those, while considering the impact of other items in your credit history, might be key to improving your financial health.

Know that debts can arise in various places

Keep in mind, all sorts of payment agreements can affect your credit history. Late rent payments, for example, can hurt your credit score if your landlord or management company reports it to the credit bureaus.3 Even smaller late payments, such as overdue library books or parking tickets, might impact your credit score if the amount due is more than $100 and it is sent to a collection agency.

Credit utilization matters

The total amount you owe on loans and credit cards may also play a role in determining your credit score. Too much debt compared with the total amount of credit you have may suggest that your finances are stretched. Credit scoring agencies call this comparison “credit utilization,” and the ratio matters when they calculate your score. Keeping that ratio low might help your overall score.

In addition to the impact that credit utilization may have on your credit score, the total amount of your loans may also matter when you apply for another loan. Lenders might look at your debt-to-income ratio (DTI), which measures the amount you owe compared with how much you earn. Although your income is not included in your credit report or used when setting your credit score, lenders might find this ratio important, as a balanced DTI can often indicate strong credit health.

The longer you’ve had credit, the better

Because the age of your accounts can also demonstrate that you have handled debt responsibly over a length of time, it may be a good idea to establish credit early. For example, when you take out your first credit line, you will start building a credit history even though you will not have a score right away. It may be beneficial to make building credit one of your long-term financial goals. It takes time to build a reputation, and your credit is no exception. If you keep your accounts in good standing for as long as possible, it might help your credit score.

Your mix of debt is important

Your credit mix, or the types of debt you have also matter. The ability to balance payments among different types of loans may show that you handle your debt responsibly. Revolving loans, such as credit cards, are considered one category. Installment loans, including personal loans, car loans, student loans, and mortgages, are grouped in another category.

Applying for too much debt too quickly might hurt

You may want to avoid seeking too much credit in a short period of time if possible. It could suggest that you are under financial stress. That’s why it is a good idea to apply for new credit only when you need it, and to think carefully about how that account can help you reach your financial goals.

8. How do I protect my credit score?

Your credit score may vary depending on the agency that generates it. That’s why it is also a good idea to check more than one source when you check your score. (Your potential creditors might do the same.)

However, don’t stop at the three-digit number. Download or print a copy of the full credit report that comes with your score and read it carefully. Your credit report can show you which factors the agency uses to calculate your score, including the number of late payments, the age of your oldest account, and the number of loans you have applied for recently.

Look through your credit report at least once per year to make sure your information is correct. Sometimes people are surprised to find that they have missed payments, or that there are fraudulent charges they weren’t aware of. When these issues arise, it is best to resolve them as soon as possible.

Most important, checking your credit report regularly might show you what steps you can take to improve your credit health. When you check your own credit report, it is considered a soft credit pull, and does not impact your credit score or credit history.

How can I use my debt to help my credit score?

Your credit score factors in the mix of debt you have as well as the amount you have in each category. Varying the type of credit accounts you use might improve your credit health. For example, someone with only one type of credit might have a lower credit score than they would if they had a credit card and a personal installment loan.

So, it can be important to balance the amount of debt you carry. In fact, paying down your revolving accounts, or lines of credit, can help your financial profile, as they are a large factor in your credit score. Consolidating some of your higher-interest debt with a personal loan from Discover may help you achieve a more balanced credit mix and potentially save you money on interest.

The right debt may help your financial future

No one wants overwhelming debt. But you don’t need to fear all debt. There is a clear difference between good debt and bad debt. Whichever you have, a manageable amount of debt usually shows that you can navigate your finances effectively. That means you can be trusted by creditors to pay your bills on time.

In the end, the best way to understand your credit score is to understand what it measures. Then you can take steps to influence it if you need to.

A personal loan might help you get a handle on your debt. Ready to get started?

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Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

* 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.