What is a credit score?

Your credit score impacts everything from your ability to access business opportunities and higher education to where you can live.

A credit score is a number calculated to represent the health of your credit today (as well as your credit history). It’s affected by many factors, including:

• The age of your oldest, active line of credit
• Delinquent payment of bills
• How much of your available credit is in use

Your credit score implies your ability and willingness to take care of your financial responsibilities—your “creditworthiness.” Lenders, landlords, and other stakeholders use this score to make informed decisions about whether they should do business with you—and the terms, if they decide to move ahead.

For example, individuals with excellent credit can secure lower-interest rate loans because they’re viewed as being a lower risk to lenders.

Computerized credit scores have been a part of American society since the late 1950s. A good score can save you money, connect you to better opportunities, and help you navigate challenging economic periods with greater ease.

Why credit scores matter

Think of your credit score as a snapshot of your financial reputation. Imagine if a total stranger asked you for a loan to start a business or purchase a car. What would you do to establish trust and minimize risk?

Now imagine that you are that stranger, requesting a loan from your bank. Even if you were with the same big bank since high school, it’s highly unlikely they’d know who you are without accessing records of your shared history together. So that’s where credit scores come in.

The health of your credit score gives a total stranger the peace of mind that you’ll probably uphold your end of the agreement. That’s why your credit score impacts so many aspects of your life, from student loans and mortgage approvals to apartment leases.

How to check your credit score

There are multiple consumer reporting agencies (also known as credit bureaus), but the three major agencies are Equifax, Experian, and TransUnion. All three credit bureaus are required to send you a free annual credit report upon request. These reports include all of your relevant credit information, with the exception of your credit score.

As for the actual number, there are consumer-facing credit scores and then credit scores used by lenders. Depending on the service you use, you might see your FICO® Score or your VantageScore®. They differ in a few ways, including timeframes (45 days versus 14 days), the types of credit activities they consider, and how they approach hard inquiries on your credit report.

How to check your credit score

• Sign up for free or paid credit monitoring services
• Pay a fee to request your credit score from Equifax, Experian, or TransUnion

Always aim to access your credit score for free, unless you’re preparing for a major purchase or loan.

What is a good score for credit?

It depends. If you request your score from Equifax, Experian and TransUnion, you’d be likely to get three different credit scores. And just as your credit score varies across agencies, the label for any given number shifts slightly depending on who you ask.

Still, these common credit score ranges can give you a general frame of reference:

• 800-850 Excellent
• 740-799 Very Good
• 670-739 Good
• 580-669 Fair
• 300-579 Poor

How to improve your credit

Wondering how to improve your credit? There’s no need to sweat with every credit score check. There’s actually a lot you can do to improve your credit score. However, significant changes do take time, so aim for maintenance over repair.

1. Stay on top of your credit reports

Request your free annual credit report to ensure every line of credit and outstanding balance reflects your actual activity. It can be notoriously difficult to fix credit report issues. The sooner you can spot one, the sooner you can get your score back to health.

However, with the rise of identity theft and data breaches, a yearly checkup might not be enough. Request a report if your credit score has an inexplicable, significant change. And consider signing up for a service like Experian IdentityWorks for ongoing credit monitoring and updates.

2. Be strategic about “hard pull” credit checks

There are two types of credit inquiries: hard inquiries and soft inquiries (also referred to as pulls). Soft inquiries don’t impact your credit, but hard inquiries affect your credit score and can stay on your credit report for a couple of years. Be strategic about your inquiries.

It’s important to know what impacts your credit score. For example, if you plan to move soon, hold off on those furniture store inquiries until your new mortgage has been approved. A dip in your credit score could mean missing out on your dream home or taking on a significantly more expensive mortgage.

3. Think twice before you close that account

The average age of your credit card accounts contributes to your credit score. This doesn’t mean you can’t close your credit accounts, but think about it before you do. Closing a newer account will have less of an impact than closing your oldest credit card. And no matter the age of an account, if it has high annual fees or you can’t resist the temptation to overspend, shutting it down would be worth the hit to your credit.

4. Avoid maxing out your credit cards

When you have little credit usage left, it implies you’re spending far more money than you can actually afford. That’s why your available debt-to-credit ratio has a significant impact on your overall credit score. Ideally, use only what you need (and, of course, pay off those credit card balances in full every month).

5. Prioritize on-time payments

Build an emergency fund and do a deep dive into your finances before taking on new, ongoing expenses. Late payments can incur massive fees and have a devastating impact on your credit score.

There’s no way to know if you’ll ever achieve the highest credit score. It’s not a perfect system. It can dip from poor money moves, but it can also drop if you just bought a home and added another car to your household (that is, if you didn’t pay for them in full). But for the most part, all it takes is payment reminders and a little planning to maintain a high enough credit score to meet your needs.