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A credit score is a three-digit number that estimates how likely you are to repay borrowed money. Credit-scoring companies plug information from your credit reports into mathematical formulas that produce your credit scores.
A low credit score may not keep you from being approved for credit, but you may have to pay a higher interest rate or put money on deposit. You also may have to pay more for car insurance or put down deposits on utilities. Landlords might use your score to decide whether they want you as a tenant.
A higher credit score can give you access to more credit products — and at lower interest rates. Borrowers with scores above 750 or so frequently have many options, including the ability to qualify for 0% financing on cars and for credit cards with 0% introductory interest rates.
When lenders or card issuers "check your credit," they may be looking at your credit report, credit score or both. You can check your own credit — it doesn't hurt your score — and know what the lender is likely to see.
Credit score ranges
The most commonly used credit score models, VantageScore 3.0 and FICO 8, have a range of 300 to 850. FICO also has specialty scores, such as for auto loans and credit cards, that have slightly different ranges.
Creditors set their own standards for what constitutes an acceptable score, but these are general guidelines:
Excellent credit: 720-850
Good credit: 690-719
Fair credit: 630-689
Poor credit: 629 or below
For most consumers, VantageScore and FICO scores tend to move in tandem. If you have an excellent VantageScore 3.0, your FICO 8 is likely to be high as well. The scores pull from the same data but weight the information slightly differently.
The average FICO credit score in 2019 was 706, squarely in the good range, while the average VantageScore was 682, slightly below it. Most lending decisions use FICO scores, and the same person's score can vary depending on which credit bureau supplied the data, because not every creditor reports to all three bureaus.
Where the information comes from
The information on your credit accounts is stored by credit-reporting agencies, also called credit bureaus. The three largest are Equifax, Experian and TransUnion. If you use credit, they probably have a record of it. Credit-scoring companies use the information to produce credit scores, and creditors buy reports and scores to evaluate applicants.
Reporting credit information is voluntary, and there are strict guidelines for how to do it. But creditors choose to do it because information about consumers' past credit habits helps them make better decisions about risk. Consumers do not have to give them permission to do this.
Lenders look at more than credit scores
When you go to borrow money, a good credit score does not guarantee a good interest rate — or even approval. Nor does a lower score indicate you cannot get credit at all.
Your income and other debts play a key role in some lending decisions, as lenders consider what you owe alongside what you earn and assets you have accumulated. Lenders use a debt-to-income ratio calculation to evaluate whether you have room in your budget to repay a loan.
How to monitor your credit score
It’s important to know where you stand, so it pays to monitor your score. You can get a free credit score from a number of personal finance websites, including NerdWallet, which offers a TransUnion VantageScore 3.0.
It's important to use the same score every time you check. Doing otherwise is like trying to monitor your weight on different scales — or possibly switching between pounds and kilograms.
So, pick a score and get a game plan to monitor your credit. Changes measured by one score will likely be reflected in the others.
And remember that, like weight, scores fluctuate. A score is a snapshot, and the number can vary each time you check it. As long as you keep it in a healthy range, those variations won’t have an impact on your financial well-being.