Credit is the trust you build that proves your reliability to pay back the money you borrow on time. Your credit score is a numerical representation from 300 to 850 of this reliability, and lenders ultimately use this score to understand if they should lend to you, and under what terms.
Your credit is calculated in a few ways. Three credit bureaus- Equifax, Experian, and TransUnion provide a credit report which tracks and maintains your detailed credit history across important credit factors like credit card and loan repayments and use a proprietary algorithm to provide a credit score based upon their data and have custom credit scoring models. While these three credit agencies are the primary source of your credit history, most lenders use FICO scores (instead of the scores from Equifax, Experian, and TransUnion) to assess your reliability as a borrower. FICO is a company which aggregates data from the agencies to provide their own credit score - the “FICO score.” Unlike the three credit bureaus, FICO does not provide a credit report. While Equifax, Experian, TransUnion, and FICO all have unique credit scoring models, higher credit scores are always better.
Despite using slightly different methods of credit scoring, all credit scoring companies track similar metrics over time:
If you’re wondering what a good credit score is, as a rough rule of thumb, a score above 670 is generally viewed as “good credit.” However, the average FICO score in 2022 is 714. And, as you can see from the FICO credit score ranges, a "poor" credit score is usually a score lower than 570, a "fair" credit score is between 570 and 670, a good credit score is between 670 and 740, and a great credit score is between 740 and 800. Excellent credit scores range between 800 and 850.
Given the different credit scoring models and credit scores, checking your credit score and credit report can seem confusing, so we're here to help you break it down and determine the best sources for this information.
However you decide to check your credit, we recommend checking your history once yearly and using a free score checker at least every four months to stay on top of your credit.
Your credit score - the single number which reflects your credit history - shows how you’ve managed debt in the past and lenders use it to predict your future financial behavior. A good credit score not only shows financial responsibility, but also saves you money and provides flexibility when you need it most.
With good credit, it’s cheaper to borrow money because lenders provide lower interest rates on your debt. The chart below shows estimates of the money you could save with different loans by having good credit (compared to “Poor” and “Fair” credit).
A good credit score tells insurance providers that you handle money well, and this tells them you’re a low-risk investment. That means you’ll get favorable rates and lower premiums on things like car and homeowners’ insurance.
Some living expense providers - including utilities, telephone, and cell phone service providers - will run a credit check. Having good credit not only speeds this process up, but also may enable you to forego providing security deposits on these services.
Everyone likes perks, and with good credit, you’ll qualify for better rewards credit cards which offer things like cash-back rewards and points available for travel redemption.
Landlords will run a credit check on potential tenants, and a good credit score makes you more likely to get approved more quickly.
In addition to getting better loan terms, you’ll get credit applications approved more quickly and with higher credit limits, saving you time and providing peace of mind.
Employers may pull a credit report as part of a background check, especially if the job involves handling cash or managing personnel files. A good credit score makes you more likely to get employed.