Credit Score cartoon graphic

What’s your credit score? If you’re thinking about borrowing money to buy a house, purchase a car, get a loan or sign up for a credit card, your credit score could be the deciding factor.

It’s kind of like a magic number that predicts your ability to borrow money.

If you don’t know your credit score, you could be in for a surprise, especially if you have a less-than perfect history of debts and paying your bills on time.

  • About 42% of adults who apply for a credit card or loan are denied because of their credit score.(1)

Maintaining a good credit score is crucial for financial health. If you don’t know your credit score or you haven’t checked it recently, it’s time for a credit-score check-up.

In this article, you’ll learn…

  • What your credit score means
  • Current trends in credit scores
  • Tools & resources to monitor your credit score
  • 4 tips to improve your credit score

Understanding your credit score

A credit score is a three-digit number that reflects your creditworthiness, based on your credit history.

It ranges from 300 to 850, with higher scores indicating better credit health.(2)

The score is calculated using several factors, including:

  • Your payment history
  • The amount of debt you owe
  • The length of your credit history
  • The types of credit you have, and…
  • Any new credit inquiries

Good vs. bad credit score

Most lenders review your credit score to evaluate your financial situation before giving you a loan.

In some cases, credit scores are also part of the application process to rent a house or apartment and get insurance.

So what’s a good credit score vs. a bad credit score? Here’s a breakdown:

  • 800 to 850: Excellent. People in this range are seen as very low-risk borrowers. They usually find it easy to get loans.
  • 740 to 799: Very Good. People in this range have a strong credit history and often find it easy to get more credit.
  • 670 to 739: Good. Lenders see people with these scores as acceptable or low-risk borrowers.
  • 580 to 669: Fair. People in this range are considered “subprime” borrowers. Lenders see them as higher risk, and they might have trouble getting new credit.
  • 300 to 579: Poor. People in this range often struggle to get approved for new credit. If you are in this category, you’ll likely need to work on improving your credit score before you can get new credit.

Current trends in credit scores

Wondering how your credit score measures up?

  • Current data shows that the average FICO credit score in the United States is 717, one point lower than a year ago.(3)

“This suggests that the effects of high interest rates and persistent inflation may be starting to weigh on consumers,” says Can Arkali, FICO Senior Director of Scores and Predictive Analytics, “especially those already struggling to manage their finances.”

Consumer behavior: 3 factors that impact overall credit scores

While your own credit score is the one that matters most to you, consumer behavior can impact credit scores, interest rates, risk level lenders are willing to take, and more.

3 factors that impact overall credit scores include:

  1. Payment history and default rates for mortgages, loans and credit cards
  2. Fluctuations in consumer debt balances
  3. Changes in applications for loans and credit cards

Check your credit score

Think you might apply for a loan or a credit card in the near future. Check your credit score.

Only 33% of adults check their credit score at least once a year.(4)

And that’s kind of a problem. Why? Identify theft and data breaches are on the rise.

Last year, identify theft reached an all-time high, impacting more than 353 million people with a potential loss of $12.5 billion.(5)

Fortunately, checking your credit score is easier than ever.

You can get a free annual credit report from one of the three major credit bureaus:

  • Equifax
  • Experian
  • TransUnion

You can also check your credit score with apps, online tools and resources, like:

  • AnnualCreditReport.com
  • CreditKarma
  • Mint
  • NerdWallet

Additionally, many financial institutions offer free credit score monitoring as part of their services.

These tools can be incredibly useful for staying on top of your credit health and identifying potential issues before they become major problems.

4 tips to improve your credit score
If you want to improve your credit score or maintain a healthy credit score (670 or higher), follow these four steps…6

  1. Pay your bills on time. Your payment history is the most significant factor affecting your credit score. Ensure you pay all bills by their due dates.
  2. Reduce your debt. Keep your credit card balances low and aim to pay off high-interest debt first.
  3. Avoid opening too many accounts: Each credit inquiry can slightly lower your score. Be strategic about applying for new credit.
  4. Review your credit report regularly: Check for errors or fraudulent activity that could negatively impact your score.

Ready for a credit score check-up?
Your credit score is a critical component of your financial health. By understanding what it means, you can make sure this “magic number” works in your favor.

Sources

  1. Davis, M., et al. (2022). 42% of Americans Were Denied a Financial Product—Like a Credit Card or Personal Loan—in the Past Year Because of Their Credit Score. Lending Tree. From: https://www.lendingtree.com/personal/credit-scores-financial-products-survey/
  2. Equifax. (2024). What Are the Different Ranges of Credit Scores? From: https://www.equifax.com/personal/education/credit/score/articles/-/learn/credit-score-ranges
  3. Arkali, C. (2024). Average U.S. FICO Score at 717 as More Consumers Face Financial Headwinds. FICO. From: https://www.fico.com/blogs/average-us-fico-score717-more-consumers-face-financial-headwinds
  4. DeMarco, J., et al. (2020). Just 33% of Americans Checked Their Credit Reports in the Past Year, Down From Last Two Years. Lending Tree. From: https://www.lendingtree.com/credit-cards/study/americans-check-credit-reports/
  5. Insurance Information Institute. (2024). Facts + Statistics: Identify theft and cybercrime. From: https://www.iii.org/fact-statistic/facts-statistics-identity-theft-andcybercrime
  6. Federal Reserve Board. (2024). 5 Tips for Improving Your Credit Score. From: https://www.federalreserve.gov/pubs/creditscore/creditscoretips_2.pdf

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