Credit Score
A credit score is a three-digit numerical summary of a person's creditworthiness, calculated from their credit history, that lenders use to evaluate the likelihood a borrower will repay a debt.
In the United States, the most widely used credit scoring model is the FICO Score, developed by Fair Isaac Corporation and first introduced in 1989. FICO scores range from 300 to 850. Scores are also generated by the three major credit bureaus — Equifax, Experian, and TransUnion — using their own proprietary VantageScore model, also on a 300-850 scale. Because each bureau may have slightly different information in its file, scores can differ modestly across the three.
FICO scoring weights five components: payment history (35%), the most important factor, reflects whether bills have been paid on time; amounts owed (30%) measures how much of available credit is currently being used, known as credit utilization; length of credit history (15%) rewards longer track records; credit mix (10%) values having a blend of revolving credit (credit cards) and installment loans (mortgages, auto loans, student loans); and new credit (10%) penalizes opening many new accounts in a short period.
Generally, a FICO score above 740 is considered very good, and lenders typically reserve their best mortgage rates for borrowers in this range. A score between 670 and 739 is considered good; between 580 and 669 is fair; and below 580 is poor, limiting access to most conventional credit products or resulting in high interest rates.
Credit scores affect far more than loan interest rates. Landlords frequently pull credit reports when evaluating rental applications. Some employers (with the applicant's consent) check credit as part of background screening for positions involving financial responsibility. Insurance companies in most states use credit-based insurance scores as one factor in setting auto and homeowner's insurance premiums.
Building and maintaining a high credit score is largely a function of consistency: paying every bill on time, keeping credit card balances well below their limits (ideally below 30% utilization), not opening many new accounts simultaneously, and allowing old accounts to remain open to preserve history length. For those with thin credit files or past delinquencies, secured credit cards and credit-builder loans are commonly used rehabilitation tools.