Your credit score can impact your ability to borrow money and access certain financial products throughout your life. Pretty important stuff, right?
That’s why we’ve put together this Credit Score Guide to help you learn the basics of how credit scores work and share some tips on building and improving (or repairing) your score. By the end of this guide, you’ll hopefully have a better understanding of your score and why it’s vital to keep that score within a good range.
Let’s get started.
Your credit score is a measurement of how likely you’re able to pay your bills or repay your loans on time. When a bank or lender looks at your credit score, they are trying to gauge the risk of lending money to you — in effect, asking the question: Will this individual be able to pay us back?
Generally, a credit score can range anywhere between 300 and 850. But sometimes you may see scores as high as 990 — it all depends on the scoring model that’s being used. There are many different scoring models out there (e.g., FICO, VantageScore, TransRisk, etc.), and each model uses a different methodology to calculate your score. Later in the guide, we’ll take a look at some of the factors that are taken into consideration and how they could affect your credit score.
But the important thing to know for now is that the higher your score, the more financially responsible or “creditworthy” you are.
You may be wondering why any of this information matters. Well, anyone who has ever applied for a credit card or a loan can appreciate the importance of having a “good” credit score. Not only can your credit score affect your ability to borrow, but it also helps determine how much interest you would be charged. Typically, people who have high credit scores tend to enjoy better loan or credit terms. This can mean lower interest rates, lower down payments or a higher credit limit. Pretty sweet, right?
On the other hand, if your credit score falls into the lower end of the range, you might have a more difficult time securing a loan or line of credit. And even if you’re able to borrow money, lenders tend to charge a higher interest rate, which reflects the risk they’re taking on in lending you that money.
Your credit score may even impact your ability to score a date on the dating circuit. According to a 2019 survey by Bankrate, more than 21% of women said that someone’s credit score would have a large impact on their interest in dating them. And there’s at least one dating website that uses credit scores to help you find a prospective date. Kind of puts a different spin on “interest rates,” huh?
Credit score ranges are what gives context to your actual credit score number — in other words, they put some meaning behind your score.
Let’s look at the general FICO credit score ranges below as an example.
Keep in mind that these ranges are general guidelines. Each lender can decide for themselves what’s considered a “good” score — their interpretation may or may not always align with FICO. They may also look at other aspects of your financial history in deciding whether to extend you a loan or line of credit.
That said, according to FICO, a “good” credit score starts at 670, which generally means that you’re creditworthy in the eyes of lenders. Having a "good" or an “exceptional” credit score can increase your chances of securing loans at competitive rates.
People with scores below 670 are generally viewed as “subprime” (translation: risky) borrowers, and they’re likely to face higher interest rates from lenders. Meanwhile, individuals whose credit scores fall below 580 or within the “poor” credit range typically have a harder time qualifying for loans.
These days it’s relatively easy to check your credit score. Many credit card and personal finance companies offer free credit scores. The ease of checking your score might lead some folks to obsessively monitor those three little digits. But don’t get too bogged down by your exact score and panic whenever it fluctuates slightly. It’s important to put the number in context — in other words, your credit score range deserves some attention, too.
Remember earlier when we said there are many different credit scoring models? Well, your credit score can mean different things under different models. Put another way, a score can fall into different ranges depending on the model that’s being used.
For example, while a score of 665 places you into the “good” credit score range under the VantageScore 3.0 model, that same score is only considered “fair” under the FICO scoring model. So in this case, saying you have a score of 665 without the context of what that score actually means may not be all that helpful in terms of predicting your ability to borrow money.
Bear in mind that it’s normal for your credit score to fluctuate month to month. Depending on which range you end up landing on, these fluctuations may or may not be significant.
Let’s stick with the FICO model to illustrate this point. If your FICO drops from 780 to 775, you’re still within the “very good” credit score range, so this five-point drop, generally speaking, shouldn’t cause an alarm.
But if a score goes from 670 to 665, this five-point drop might be a little more concerning because now you’ve dropped out of FICO’s “good” credit range and down into its “fair” range. This might make it slightly harder for you to predict whether you would be able to receive competitive borrowing terms.
Generally, you shouldn’t worry if your score drops or ticks up by a few points from month to month if it doesn’t impact your credit score range. Whether you have a FICO Score of 800 or 805 matters little: You’re exceptional in FICO’s eyes either way!
Alright, so fluctuations in your credit score are bound to happen. But what accounts for the ups and downs? Generally, the following factors all have a role to play in your credit score:
Each of these variables is weighted differently depending on the credit scoring model that’s used. This means some categories are more influential than others when it comes to calculating your credit score. Here’s how FICO breaks them down:
Building good credit can be tough if you don’t have a credit history to begin with and have to start from scratch.
If you’ve been managing credit cards and/or loans for a good chunk of your life, this may not apply to you. But young people who are just stepping into adulthood often face this challenge. Fortunately, there are a number of ways to build credit.
Here are a few common options to consider:
In a way, your credit score is like a report card for your credit. Have you been using and managing your credit cards responsibly? Have you been paying your bills on time?
If you’ve hit some bumps on your credit journey, fret not. There’s hope! Improving or repairing a low credit score is totally possible. Here are some helpful tips to keep in mind:
“A good credit score is one you are working to improve.” FICO is right about that. Achieving a good score is not a one-and-done deal. Maintaining it requires vigilance and diligence. And it starts with making sure you understand the basics of how credit scores work. Hopefully, this Credit Score Guide has helped to build up your foundational knowledge.
Best of luck on your credit journey — you got this!
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.