What is a Credit Score
A credit score is a three-digit number — typically between 300 and 850 — that summarizes your creditworthiness based on your borrowing history, used by lenders to assess the risk of lending to you.
A credit score is a numerical representation of how likely you are to repay borrowed money on time. Lenders — banks, credit unions, mortgage companies, landlords, and even some employers — use credit scores to quickly evaluate whether you're a responsible borrower and what terms they're willing to offer you.
The most widely used scoring model is the FICO Score, developed by the Fair Isaac Corporation. FICO scores range from 300 to 850, with higher scores indicating lower risk to lenders.
Credit Score Ranges
| Score Range | Rating | What It Generally Means |
|---|---|---|
| 800–850 | Exceptional | Best rates available; rarely denied for credit |
| 740–799 | Very Good | Strong rates; most lenders will approve |
| 670–739 | Good | Near or above national average; reasonable rates |
| 580–669 | Fair | May qualify for credit, but at higher rates |
| 300–579 | Poor | Likely to be denied or face very high rates |
What Factors Make Up Your Credit Score
FICO breaks down score calculation across five categories:
| Factor | Weight | What It Measures |
|---|---|---|
| Payment history | 35% | Whether you pay on time |
| Amounts owed | 30% | Credit utilization (how much of your available credit you use) |
| Length of credit history | 15% | How long your accounts have been open |
| Credit mix | 10% | Variety of account types (cards, loans, mortgage) |
| New credit | 10% | How many recent hard inquiries or new accounts |
The two biggest factors — payment history and amounts owed — make up 65% of your score. Paying on time and keeping credit card balances low relative to your limits are the most effective ways to build and maintain a strong score.
How Your Credit Score Affects Borrowing Costs
The difference between a good and excellent credit score can translate into thousands of dollars in interest over the life of a loan. On a 30-year mortgage, for example, a borrower with a 760 score might receive a rate 0.5–1% lower than someone with a 660 score — which can mean $30,000–$60,000 in additional interest paid over the life of the loan.
Credit scores also affect:
- APR on credit cards — better scores unlock lower rates
- Auto loan rates
- Rental applications — many landlords run credit checks
- Insurance premiums in some states
Checking Your Credit Score
Under federal law, you're entitled to one free credit report per year from each of the three major bureaus (Equifax, Experian, TransUnion) at AnnualCreditReport.com. Many credit cards and financial apps also offer free FICO or VantageScore access. Credit Karma provides free credit score monitoring and shows which factors are helping or hurting your score.
Improving a Low Credit Score
- Pay every bill on time — set up autopay for at minimum the minimum payment
- Pay down credit card balances to below 30% of your limit (ideally below 10%)
- Don't close old accounts unnecessarily — account age matters
- Limit applications for new credit in a short window (multiple hard inquiries signal risk)
- Dispute inaccuracies on your credit report
Credit Score and Debt-to-Income Ratio
While your credit score measures your history of repayment behavior, your debt-to-income ratio measures your current financial capacity to take on new debt. Lenders evaluate both when you apply for significant loans. A high credit score with a high DTI may still result in denial or a higher rate on a mortgage or auto loan.