Credit Score Guide

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Your credit score can impact your ability to borrow money and access certain financial products throughout your life. That’s why we’ve put together this guide to help you learn the basics of how credit scores work and share a few tips on how you could build and improve your score.

What we’ll cover

What is a credit score and why does it matter?

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 borrower 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.

Highlights:

  • Your credit score is a measure of your “creditworthiness.”
  • A credit score typically ranges between 300 and 850.
  • The higher your credit score, the more likely you’ll receive competitive terms when applying for a loan.

But the important thing to know for now is that the higher your score, the more financially responsible or “creditworthy” you are in the eyes of lenders.

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.

On the other hand, if your credit score falls on 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.

Credit score ranges: What does your credit score really mean?

If someone tells you that they have a credit score of 650, what does that mean? Sure, we know a higher score is better than a lower score. But there's more to it than that. This is where credit score ranges come into play.

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.

  • Poor: Below 580
  • Fair: 580 – 669
  • Good: 670 – 739
  • Very Good: 740 – 799
  • Exceptional: 800+ 

Highlights:

  • Generally, your score falls into one of the following credit score ranges: Poor, Fair, Good, Very Good, Exceptional.
  • Individuals with a credit score below 670 are typically considered subprime or risky borrowers.
  • It’s normal for credit scores to fluctuate slightly month to month — minor changes in your score are usually not a cause for concern.

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 you’re creditworthy. 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” or 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 will typically have a harder time qualifying for loans.

Why your credit score range is important

Many credit card and personal finance companies offer free credit scores. If you’re checking up on your score month to month, don’t worry if the number fluctuates slightly. It’s important to put the number in context by understanding what it actually means – in other words, focus on your credit score range.

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 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!

What can affect your credit score?

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:

  • Payment history (e.g., is there a history of late payments?)
  • Credit utilization rate (amount owed vs. amount of credit available)
  • Length of credit history
  • Credit mix (types and numbers of credit accounts and/or loans)
  • Number of new or recently opened credit accounts
  • Certain public records such as bankruptcy
  • Total debt
  • Number of hard inquiries into your credit report

Highlights:

  • A number of factors can affect your credit score, including credit utilization, number of new credit accounts and total debt.
  • Certain factors will matter more than others depending on the scoring model that’s being used to calculate your score.
  • Under FICO, the three most influential factors are payment history, amounts owed and length of credit history.

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:

  • Payment history = 35%
  • Amounts owed = 30%
  • Length of credit history = 15%
  • Credit mix = 10%
  • New credit = 10%

How to build credit

Building good credit can be tough if you don’t have a credit history to begin with.

If you're used to managing credit cards and/or loans for a while, 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:

  • Opening a credit card account. If you have trouble opening a traditional account due to the lack of a credit history, consider opening a secured credit card or becoming an authorized user on someone else’s account (e.g., parents).
  • Paying bills on time. Since payment history is one component of your credit score, paying bills on time can help build a positive credit history. These bills may include student loans, auto loans, utility bills and rent. You may have to ask your utility companies and your landlord to report your payment history to the major credit bureaus, as these types of payments are typically not reported (unless you’re delinquent).
  • Watching your credit utilization. If you’re able to open your own credit card account, it’s important to use that line of credit responsibly. Maxing out your credit card every month can hurt your credit score. On the other hand, keeping your credit utilization rate low can help positively impact your score. 

Learn more: How to Build Credit  

How to improve or repair a credit score

If you’ve hit some bumps in your credit journey and are concerned about your score, don't worry. Improving or repairing a low credit score is possible. Here are some helpful tips to keep in mind:

  • Understand the various factors that can impact your credit score.
  • Pay your bills on time.
  • Apply for credit only when you need it and maintain a low credit utilization ratio.
  • Keep old credit accounts open.
  • Check in on your credit score and credit report regularly, correcting any mistakes as soon as possible. Fun fact: Did you know that each of the three major credit bureaus (i.e., Equifax, Experian and TransUnion) is required by federal law to provide consumers a free credit report every 12 months if you request it?
  • Be patient and give it time - this one might be particularly hard, but hang in there. Keep in mind that the negative events or dings on your credit report will have less impact as time passes.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website 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, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.