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Credit Scores Explained in (Exactly) 250 Words

Credit Score, Personal Finance
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Credit Scores Explained in (Exactly) 250 Words

What credit scores are: Three-digit numbers expressing the likelihood you’ll repay someone who lets you use their money (like a loan or credit card).

Who has a credit score: People who have been listed on an account that was reported to any of the three credit bureaus: Equifax, Experian and TransUnion. An account can be a student loan, car loan, credit card, credit-builder loan or maybe rent. It represents something you are obligated to pay.

Where the number comes from: Data is collected by the credit bureaus, which get the information from lenders, credit card issuers and public records. Then it is weighted to produce a score, typically on a 300 to 850 range. Higher is better. There are hundreds of scoring models, so most consumers have many credit scores.

How do I get started?

  • If someone with good credit makes you an authorized user on an account that’s reported, that can help.
  • Student loans and sometimes car loans can be relatively easy to qualify for.
  • Credit-builder loans and secured credit cards are made for people building credit or re-establishing credit.

What should I do to boost my credit?

  • Pay all bills on time, every time.
  • Use your credit cards lightly — that is, don’t use more than 30% of your credit limit on any card.
  • Keep old accounts open unless you have a good reason to close them (like high fees).
  • Apply for credit sparingly.
  • Consider having both installment (level monthly payments for a set period) and credit cards.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.