What is a credit score? A credit score is a 3-digit number that represents how risky it may be to extend credit to you. Some landlords may use them as well.
Lower scores mean you are a greater risk to lend to, and higher scores mean there’s less risk for the lender.
We’ll go into more detail about credit scores and how they’re calculated next.
What Are Credit Scores Really About?
Thanks to great marketing, many people don’t realize that credit scores are about debt. Credit scores reflect info about:
- your existing debt
- possible new debt
- plus how you’ve handled repaying money you borrowed in the past
In other words, your credit scores are a quick way of telling potential lenders how good of a risk you might be. (At the moment that they pull a score.)
The scores are a widely-used decision-making shortcut. They’re used used in place of a deep dive into your finances and financial history.
Who Created the First Credit Score?
Bill Fair and Earl Isaac started Fair, Isaac, and Company in 1956. By 1958, they created the first credit scoring system.
Their goal was to use statistics and rules to boil down the kinds of behaviors that make someone a good or bad credit risk. They came up with Credit Application Scoring Algorithm tools to do that.
And in 1989 the company created the first modern-day credit score: the FICO® Score.
Today, there are many scoring models and several companies who create them. This means you have many credit scores. If you want to check some of your scores for free, you can do so with Credit Karma. Banks and credit card companies may also let you do that.
Multiple Scoring Models and Credit Scores
There are two major credit scoring models, FICO and the VantageScore. Each of those major models have many different versions. Let’s talk about both of the main ones next, along with some of their scores.
The FICO Score Models
The FICO website says their scores are “used by over 90% of top lenders when making lending decisions”. And right now, FICO’s most-used score in general is FICO® Score 8. But there are many others that get used for various purposes. How many?
While it’s hard to say for sure, one of their products offers “online access to your 28 most commonly used FICO Score versions”. And in 2012 the CFPB said “FICO alone has over 49 credit scoring models.” Plus, they expect to release the FICO 10 and 10T as well.
It’s safe to say there are a LOT.
So which FICO score gets used? In general it depends on the industry pulling the score, and what they are looking for.
For example, the FICO scores pulled by a mortgage lender are usually not the same ones pulled by a car dealer. And both those are usually different than what you might see if you check your FICO score.
The VantageScore Models
Equifax, Experian, and TransUnion came together and created the VantageScore model in 2006. VantageScore has four different scores, and the newest one is VantageScore 4.0.
VantageScore commissioned a market adoption study in 2019. It shows that their “credit scores continue to be used across the entire lifecycle of consumer lending and across every relevant category except mortgage originations.”
You’re also likely to get a VantageScore from consumer websites, but not always.
Credit Score Ranges: Minimums & Maximums
Once again, the minimum & maximum credit score ranges depend on which company they’re from and which version you’re looking at. In the past, this caused confusion because the ranges were not the same, but it’s less of a problem now with the newer scores. Let’s go over the ranges next.
FICO Score Ranges
The FICO credit score ranges vary depending on which score gets pulled. For their base scores, like FICO® Score 8, the range is 300-850.
The range for their FICO® Auto Scores and FICO Bankcard Scores is 250-900. However, you’re unlikely to see those as a consumer.
That’s why most people say the FICO score is 300 and the best is 850, and why 850 is usually called a perfect score.
The VantageScores credit score also ranges vary depending on which score you use. For VantageScore 3.0 and 4.0 the range is 300-850. So the minimum is 300 and the max is 850. Again in this case 850 would be a perfect score.
For the earlier VantageScores, the range is 501-990. In that case the minimum is 501 and the max is 990.
Credit Score Ranges’s Impact on Borrowing
No matter what credit score someone uses, the idea is the same. Lower scores mean more risk for the lender, and higher scores mean less risk for the lender. But what do they mean for you?
In general, credit scores are divided up into subranges. You may hear talk of prime and subprime loans on the news sometimes. Those are some of the ranges that make a big difference.
Where your score falls affects whether you’re offered credit and the interest rates you may pay. Usually the better your credit scores, the more likely you are to be offered credit, and the less interest you’ll be charged.
For example, you’ve probably heard things like “for those with good or excellent credit” in ads. That’s an example of where having a higher score helps if you want to borrow.
Basically, a high score means you’ll pay less for what you borrow, and a low score means you’ll pay a lot more. This can make a HUGE difference if you choose to borrow.
What Is a Good Credit Score?
While there’s no official cutoff, usually scores of 660 and up are considered good credit scores. Likewise, in general scores below 580 are considered bad.
The CFPB breaks common credit scores down into 5 subranges. (On their borrower risk profiles page.) The ranges are:
- 720 or above: Super-prime
- 660-719: Prime
- 620-659: Near-prime
- 580-619: Subprime
- Below 580: Deep subprime
Prime and above will get you much better rates than subprime or below. (You don’t want a subprime loan if you can help it. They will cost you a LOT.)
What do those ranges break down to? Well, first keep in mind that each lender might see things a little differently. And again, there isn’t a firm or official cutoff. But in general for the base FICO Scores and VantageScore 3.0 & 4.0, those subranges can translate to:
- 850: Super-prime, Perfect credit
- 800-849: Super-prime, Exceptional credit
- 720-799: Super-prime, Excellent credit
- 660-719: Prime, Good credit
- 620-659: Near-prime, Fair credit
- 580-619: Subprime, Poor credit
- Below 580: Deep subprime, Bad credit
There are two reasons you might have no credit score at all. That can happen if you:
- haven’t borrowed money (either ever, or in many years)
- don’t have enough of a credit history reported to the credit bureaus.
In either case, you’re considered unscored or sometimes “credit invisible”. A thin file is when you don’t have much of a credit history reported.
Let’s talk about how credit scores get calculated next.
How Are Credit Scores Calculated?
We’ve hinted at it already, but credit scores are calculated based on the info in your credit reports.
That’s why it’s a good idea to check your credit report and make sure they are correct. If they’re not, you can ask the credit bureau to remove anything that’s wrong. The three major credit bureaus are Equifax, Experian, and TransUnion.
You can get a free copy of your report from each one by going to AnnualCreditReport.com. Right now, you can get one each week due to COVID, but normally it’s once a year. You can also get a copy if you’re denied credit.
What Factors Affect Your Credit Score?
Some parts of your credit history have a bigger impact on your credit scores than other. And as you might expect, the FICO Score and VantageScore factors aren’t quite the same. Here’s what what influences a credit score for each of those companies.
FICO Score Factors
According to myFICO, their credit scores are made up of five different factors:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
But FICO says the percentages shown “reflect how important each of the categories is in determining how your FICO Scores are calculated. The importance of these categories may vary from one person to another”.
With VantageScores, some factors also matter more than others. With their latest scores:
- Total credit usage, balance, and available credit are “extremely influential”.
- Credit mix & experience are highly influential
- Payment history is moderately.
- New accounts opened and age of credit history both have less of an influence.
But not everything affects your credit score.
What Factors Do NOT Affect Your Credit Score?
This at least is mostly the same between companies. Legally, these types of things don’t matter when it comes to your credit scores:
- National origin
- If you’re married or not
- Getting public assistance
- Using any of your rights under Consumer Credit Protection Act
They also do not consider your:
- Employment history
- Where you live
- Info that’s not in your credit report
- Or soft inquiries
Checking your own credit scores does not hurt your credit either. (Because that’s an example of a soft inquiry.)
However, note that lenders may consider things like your income, assets, job, etc when deciding whether to lend to you.
If you don’t have a credit score or have a thin file and you want to borrow, you may be able to use Regulation B to help.
Credit expert John Ulzheimer says, “The ‘shoebox credit’ provision of Reg B forces lenders to consider any credit reference or obligation that you want them to consider, as long as it’s something that could similarly be on a credit report.”
Final Thoughts on Credit Scores
Generally speaking, if you want a higher credit score (of any type) be responsible with your money. Pay your debts on time and as promised, don’t take on too much debt, and don’t use a lot of your available credit. Here are a few tricks to raise your FICO score that might help as well.
Your credit scores aren’t set in stone either. They change often, because they’re based on the changing info in your credit report.
If you’ve made a change recently (for example, paying a down a debt that had a high balance) it will have to show up on your credit report first before you may see a change in your score. That can take some time. But paying down that debt may help repair your credit.
Either way, if you’re stressed about your score, focus most on making sound choices with your finances. Your score will follow.