Credit Score Basics

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Last updated on August 14th, 2023

A credit score is an essential aspect of your financial reputation. If you’re planning to buy a car, apply for a mortgage, or apply for a credit card, the financial institution you go to will consider your credit score before making a decision on your application. Read on to learn what a credit score is, what it’s made of, and how to interpret it. Here are some credit score basics:

Credit Score Basics: What is a Credit Score?

A credit score is a three-digit number that summarizes your credit history and represents how much of a risk you pose as a borrower of a lender’s funds. The higher the score’s number, the less likely you are to default on a loan or line of credit, and therefore, the more favorable your chances are of being approved for the loan or credit line. Better credit scores also mean lower interest rates and higher credit limits.

While a credit score does not paint the entire picture that is your credit history, it is a quick and reliable indicator of how financially responsible you are.

Credit Scores vs Credit Reports

Credit scores are determined based on your credit report, therefore they are not the same thing. Credit reports are created by the industry’s three major credit bureaus: Equifax, Experian, and TransUnion. Credit reports for an individual may vary slightly between these three agencies, so it’s not uncommon for each to assign distinct credit scores. When you apply for a credit card or loan, issuers will consider both your complete credit report along with your credit score as an overall assessment of said credit report.

Credit Score Basics: What Makes Up a Credit Score

A credit score is comprised of a mixture of factors based on your personal information and previous, as well as current, financial activity. This data is available in your credit report. Payment history and current debt amount are the biggest determining elements when formulating one’s credit score, while credit history length, new credit, and credit mix make up the rest of the equation. Here’s a brief explanation of each:

Payment History

Current Debt Burden

Credit History

New Credit

Credit Mix

Here’s a more detailed breakdown of each determining factor of your credit score:

  • Payment History: How long you’ve been making payments on past and current debt. The more on-time payments you’ve made, the better you look to lenders. 
  • Current Debt Burden: Ideally you want to owe as little as possible. Having substantial existing debt will reflect negatively when calculating your credit score.
  • Credit History: Having several years’ worth of borrowing and repaying money shows that you’re financially responsible and have been so long enough to make you a trustworthy borrower. 
  • New Credit: It is generally good practice not to open several credit accounts within a short time span. Doing so will make you look like a riskier borrower. 
  • Credit Mix: Mortgage loans, auto loans, retail accounts, and other instances of money lent are all looked at in order to form a transparent profile of a consumer.

Credit Score Models

The most established and popular credit score is the FICO Score. The majority of lenders refer to it when evaluating credit or loan applications, and it is the most readily accessible to consumers.

FICO scores are developed by Fair Isaac Corporation, known almost universally, and simply, as FICO. The company creates different credit scoring models used by lenders in different industries. For instance, auto loan lenders may use one model while mortgage lenders may use another. FICO’s scoring models do not vary wildly; they are merely fine-tuned so lenders can make more informed decisions regarding borrowers.

fico credit factors
FICO Scoring Factor % of Score
Payment history/ late payments 35%
Total amount owed on credit accounts 30%
Average length of credit history 15%
Types of credit accounts 10%
New credit applications (hard inquiries) 10%

Another credit score model, relatively recent and on the rise, is the VantageScore. This model was developed by Experian, Equifax, and TransUnion, and simply offers another angle with which lenders view and evaluate applications. Both scoring models range from 300 to 850 but factor in different elements. Here’s how VantageScore weighs different aspects of your credit health:

VantageScore factor % of Score
Payment history/ late payments 40%
Credit depth 21%
Credit utilization 20%
Total balances 11%
Recent credit 5%
Available credit 3%

Credit Score Basics: Getting Your Credit Score

You can get your credit score through various channels. allows you to purchase your FICO Score, though you can also get it through any of the three credit bureaus. In addition, there are websites that offer free access to credit reports, such as and Some credit card issuers offer access to your FICO Score via their cards’ monthly statements, making it more convenient for consumers. Lastly, if you are denied credit or approved for lesser terms than you applied for, lenders are required to provide you with a copy of the credit score they used in their decision.

What Is the Average Credit Score?

While there are differing scoring models, the average credit scores of most Americans fit into a easily digestible credit score range. Here are the current average estimates of credit scores among American adults:

Credit Score Ratings % of Americans
300 to 579 Very poor 16%
580 to 669 Fair 18%
670 to 739 Good 21%
740 to 799 Very good 25%
800 to 850 Excellent 20%

How to Fix Your Credit Score

As the above demonstrates, a considerable number of Americans have a fair or bad credit score. The above statistics also don’t highlight the over 26 million Americans without a credit history (also called no credit score).

There are several ways to improve your credit scores and achieve a good credit score over time.

① Check your credit score The first thing you should do is check your credit score to see where you stand. You might already know your credit score is bad, but how far down on the scale, does it go? Knowing how fast you can improve your credit from “bad” to “fair” is crucial to making a financial plan of attack.
② Get a credit card for subprime credit Part of boosting your credit score is increasing your use of credit. For those with bad credit, this may seem counter-intuitive. Fortunately, there are many unsecured credit cards for poor credit and secured cards that can help you repair your credit score.
③ Pay on time each month As seen in the scoring models, payment history is the biggest factor in your credit score. Because payment history is so important, paying your credit card bill on time each month is essential to boosting sub-prime credit. Missed payments stay on a credit report for seven years.
④ Keep your credit use low Credit utilization is as important as paying on time. Credit utilization shows lenders how you use your credit. Those who keep their credit use below 30% can expect their score to improve, while those who use less than 10% can expect a much faster score rise.

Something to Keep in Mind

While credit scores and credit reports are the industry standard used by lenders when determining consumer risk, no measures are set in stone. No score is a guarantee of any particular outcome, and lenders all have different strategies that they use when evaluating applicants, as well as their own definitions of what amount of risk is acceptable to them.

We recommend you check your credit report periodically from one of the three credit bureaus, as well as your credit score from any of the resources mentioned above, to have an informed idea of where you stand. But remember that these data should be used as points of reference, not guarantees of any precise consequence.

Related Article: How Accurate is Your Credit Report?

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About: Cory Santos
Cory Santos

Cory is the senior credit card editor at BestCards, specializing in everything credit card-related. He’s worked extensively with credit cards and other personal finance topics, including nearly five years at BestCards. Cory’s extensive knowledge is an essential part of the BestCards experience, helping readers to live their best financial lives with up-to-date insights and comprehensive coverage of all facets of the credit card space, including market trends, rewards guides, credit advice, and comprehensive credit card reviews.

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