Credit Score Basics

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Last updated on August 13th, 2021

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:

credit basics

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.

credit score basics

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 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.

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.

FICO Score Vs. VantageScore

How FICO Score (left) and VantageScore (right) calculate their credit scoring models

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

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.

  • Make Payments On Time: The best way to do that is to automate your bills on time every month. Since payment history affects your credit scores the most, regardless of scoring model or credit bureau, paying your bills is the easiest route to building credit.
  • Keep Credit Utilization Low: Keeping your balance on your credit card below 30% of your limit is another great way to build credit. This makes up 30% of your credit score. 
  • If Possible, Pay Your Balances In Full

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?

Featured photo by QuinceCreative/ PixaBay
About: Cory
Cory Santos

Cory is's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. Cory holds academic degrees in both the U.S. and U.K. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.

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