Credit Scores

What are Credit Scores?

A credit score is a three-digit number calculated based on a consumer’s credit report. In lending, a credit score is intended to serve as a measure of the credit-worthiness of an individual—this helps lenders evaluate the risk of default associated with lending to that person.

The credit score may also factor into the determination of the interest rate the lender will offer to a prospective borrower.

Credit Score Calculations

Various organizations provide credit scores, which are all similarly calculated. Examples include the FICO score, the most commonly used score in the United States (created by FICO1), and the Vantage Score2, the second-most commonly used score (created in collaboration by the 3 major American credit-reporting agencies).

FICO calculates each score by taking into account the following factors:3

Payment History:

  • The score considers whether you pay your debts on time
  • The score is negatively affected by missed or late payments
  • The following factors will be taken into account to determine payment history’s effect on the score:
    • How many missed or late payments
    • How recently the missed or late payments occurred
    • How late the payments were
    • How much was owed

Amount Owed:

  • Amount owed is the current outstanding balance of all your debts combined.
    • Credit utilization is one of the factors considered in this section. Utilization indicates the amount of credit available to you that is currently being utilized.
    • Higher utilization can indicate that a person is overextended and is more likely to miss payments or pay late.
    • Utilization is calculated by dividing the sum of all balances you owe by the sum of all credit limits.
  • Having an outstanding balance on your credit accounts will not necessarily result in a low credit score. In fact, consistently making on-time payments on credit accounts can show to creditors that you can responsibly manage additional debt.
  • The Amount Owed section of the credit score considers the following factors:
    • Amount owed on all credit accounts.
    • Amount owed on different types of credit accounts.
    • Whether there is an outstanding balance on certain types of credit accounts.
    • Total number of credit accounts with an outstanding balance.
    • Utilization of revolving credit lines (see above for description of utilization).
    • Outstanding balance on installment loans as compared to the original loan amounts.

Credit Age:

  • Longer credit histories in general will increase a credit score.
  • People who do not have long credit histories may still have a high credit score depending on the results of the other sections that influence the credit score.
  • The Amount Owed section of the credit score considers the following factors:
    • Length of time that credit accounts have been open (including the average age of all accounts and the age of the newest and oldest accounts).
    • Length of time specific credit accounts have been open.
    • Length of time since the last use of certain credit accounts.

Type of Credit in Use:

  • A credit history containing different types of credit shows lenders you have experience handling a range of debt types, and therefore may present lower credit risk if you have managed the credit responsibly by paying on time.
  • Installment loans, credit cards, mortgage loans, retail accounts and finance company accounts are all considered different types of debt.
  • The number of credit accounts is also considered.

New Credit:

  • Opening up multiple credit accounts in a short time period may lower your credit score.
  • Inquiries that occur when you apply for credit will only remain on your credit report for two years; however, the credit score only consider inquiries from the last 12 months.

Still, not every credit score places the same degree of importance on the same items in a consumer’s credit history. Some lenders seek other information from an individual’s credit history, or look at the same information with a different perspective.

The Vantage Score, for instance, while calculated based on many of the same criteria as the FICO Score, assigns different degrees of priority to certain factors. The Vantage Score is the score developed in collaboration by the three major credit-reporting bureaus as an alternative method for determining credit-worthiness.

In addition to scores, Vantage also assigns letter grades to consumers, based on this assessment of an individual’s credit history.

Where to Get Your Credit Score

You can get your score from a variety of different sources. You could order it from FICO, VantageScore, or one of the individual credit-reporting agencies.

There are some other places online where you might be able to get your score for free, but it’s important to be careful. As the FTC points out, you should be sure to find a reputable website and avoid scams. Be aware that a “free credit score” could have strings attached.4

Also, remember that the score you get from one source may be different from the score you get from another source.

Credit Scores FAQs

What is in my credit report?

Each credit-reporting agency has their own version of a credit report, but they all contain the same type of information:

  • Personal identifying information
  • Details on credit accounts
  • A list of credit inquiries over the past two years
  • Public record and collection activity

Is my credit score on my credit report?

No, your credit score is not included on your credit report.

However, keep in mind that your score is based on the information in your credit report and, since a credit report displays a lot more information about your credit history, it is important to pay attention to the report rather than just your score, as both may be considered by lenders.

While your score may not be included on your credit report, you can obtain your credit report from any of the credit-reporting agencies, from one of the score-producing companies, such as FICO or VantageScore, or from certain other companies. In many cases, you will have to pay to receive it.5

How do I get a credit report?

Each nationwide credit reporting companies (Equifax, Experian, and TransUnion) is required to provide you with a free copy of your credit report, at your request, once every 12 months. Refer to the FTC’s website for more details on how to obtain your credit report.4

How long does negative information stay on my report?

In general, negative information stays on your credit report for 7 years. There are some exceptions to this rule, though, depending on the type of negative information.

According to FICO’s website, the lengths of time you may see negative information on your report:6

  • Late payments: 7 years
  • Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies
  • Foreclosures: 7 years
  • Collections: generally, about 7 years, depending on the age of the debt being collected
  • Public Record: generally 7 years, although unpaid tax liens can remain indefinitely

FICO also notes that the older one of these pieces of negative information is, the less it affects your credit score.

When does a request for a credit report affect my score?

The request for a consumer’s credit report is called a credit inquiry or credit check. A credit inquiry can be either hard or soft (also referred to sometimes in the industry as a “hard pull” or “soft pull”). Here’s how they differ:7

Hard inquiries:

  • Negative effect on credit score—can drop the borrower’s score a few points, typically between 1 and 5 points
  • Voluntary—typically must be made with a borrower’s consent or for a permissible purpose
  • Required when applying for a loan or credit card, or when opening a bank account

Often, a history of frequent hard inquiries signals to lenders that you are always on the hunt for loans, which can have an adverse effect on your ability to obtain loans.

Soft inquiries:

  • No negative effect on credit score
  • Often used by lenders to pre-qualify potential customers
  • Occurs when you make a request to check your own credit report

Both types of inquiry will be recorded on a consumer’s credit report. It’s good to pay attention to this record—if you see a hard inquiry you don’t recognize, it may indicate that someone else is using your information to apply for loans or credit cards.

What’s a good score?

This one’s sort of a tricky question, because it’s impossible to get a universal consensus about what constitutes a good or bad credit score.

While it’s true that many lenders don’t have a specific credit score range they accept, the lower your credit score is, the higher your interest rate is likely to be or higher the likelihood that credit will not be offered to you.

Why should I improve my score?

Sometimes it may seem difficult to improve your credit score. However, it is important to try to do so. Having bad credit can have negative effects on various aspects of your life as a consumer—even ones you may not have imagined.

In addition to having an effect on the loans and loan interest rates offered to you, your credit history can also have an effect on the following:

Job background check: Employers may consider whether a prospective job candidate is a good choice based on the candidate’s credit history. Credit history, according to, gives employers an idea of how responsible and financially stable the candidate is. Because of the importance that employers place in this background check, consumers should check their credit report for errors before applying for jobs in order to make sure that their credit histories accurately represent them before an employer looks at these records.8

Cell phone contracts: Cell phone companies may choose whether to offer cell phone plan contracts based on a consumer’s credit history, since cell phone service is paid for after it is received, according to Nerdwallet.8

What are some ways to possibly improve my score?

The way to improve your credit score is to practice good financial habits. While this may sound tricky, it’s always important to keep working on it and not give up.

Here are some key ways to work towards an improved score:

Check your credit report (and then check it again, and again…)

The first step is easy. Check your credit report regularly to keep track of any unfamiliar information. If your credit score seems lower than expected, it’s possible that a credit reporting error was made or that identity theft has taken place.

If you do find an error in your credit report, be sure to report it to the credit-reporting agency promptly so that the error can be corrected.


First, look at how you’re spending your money. If you keep a record of every occasion where you pull out your wallet, you may be able to see more clearly how you could reduce your spending. You can identify the unnecessary expenses, and then make a budget to help rein in your future spending.

Pay bills on time

This is an essential step towards trying to improve your score. Being consistently on time when paying bills may positively impact on credit score.