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Understanding Your Credit Score

Man checking credit score on computer.

A credit score is an assessment of your creditworthiness. Lenders use the credit score to determine whether or not to lend to you, what the interest rate will be on the loan, and other terms that impact the cost of credit for the consumer. A high credit score indicates you are a low-risk borrower (have a history of on-time payments, do not over-extend credit, and don’t have too many credit accounts). A low credit score could indicate a higher risk to the lender.

Credit Score Types

FICO® Scores

When you apply for credit from a lender, chances are they will pull your FICO® Score. The FICO Score was created by the Fair Isaac Corporation and is the most widely used (90% of lenders rely on the FICO Score). This score is based solely on information found in your credit report and ranges from 300 – 850. The calculation is based on five categories: 1) payment history; 2) amounts owed; 3) length of credit history; 4) new credit; and 5) types of credit used.

Each credit reporting agency (TransUnion, Equifax, Experian) has a different FICO Score calculation that is determined by the information in that agency’s credit report for a specific person. All of the scores, however, are developed using the same methods by Fair Isaac and have been rigorously tested to ensure they provide the most accurate picture of credit risk. Since the three scores can vary, some lenders will use the middle score (sometimes called the “representative” credit score). For example, if your three FICO scores are 680, 530, and 630 your middle score is 620.

Non-FICO Scores

There are a variety of non-FICO Scores available as well that some lenders and insurers (don’t forget that many insurance companies will check your credit as well and your premium may be affected by a low credit score) use to make decisions.

Table 1. Credit scores, issuing agencies, and ranges.

Name Agency Score Range
FICO® Score 8 Three major credit reporting agencies. 300 - 850
VantageScore Three major credit reporting agencies 300 - 850
Equifax Credit Score Equifax 280-850
Experian’s National Equivalency Score Experian 0 - 1000
TransRisk TransUnion 9 - 900
CE Credit Score CE Analytics 330-850

Tracking Your Scores

Since there is such a range of credit scores a score with one agency may be different than a score with another. Just because a lender may not elect to use one of these particular scores, does not mean that they don’t matter at all. The majority of these were developed with the consumer in mind and are for educational purposes.

The score at any given date may not be exactly what you are looking for, but tracking your score over time will give you an idea of how you are doing. So, if you are trying to improve your credit score select one of the scores above and monitor it from month-to-month to see if your score increases or decreases.


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