What Is a Credit Score?

A “credit score” is a three-digit number that summarizes your credit history. It’s a simple and efficient way of telling a creditor what type of borrower you are, without getting into too many details.

In short, a credit score measures the likelihood that you will become delinquent on a credit line or obligation in the future.

High Credit Scores = Low Risk
Low Credit Scores = High Risk

The higher your credit score, the lower credit risk you are. And vice versa.

How are credit scores calculated?

Companies that develop credit scores rely on three main areas of your credit report to come up with your credit score. They include:

– Account information
– Public records
– Credit inquiries

Account information includes payment history on revolving and installment accounts, such as car loans and leases, credit cards, and mortgages. If you have accounts that are past due or worse, in collection or charge-off status, your credit score will be lower.

It’s further broken down into:

– Payment history
– Credit utilization (amounts owed/available credit)
– New/recent credit
– Length of credit history
– Types of credit used

Public records include tax liens, foreclosures, and bankruptcies, all of which can lower your credit score.

Finally, credit inquiries, which are applications for new lines of credit, come into play. You’ll want to keep these to a minimum to ensure you maintain a good credit score.

Information such as race, gender, sex, income, employment, address, and marital status are not used to determine your credit scores.

Are there multiple credit scores?

Yes. There are said to be as many as 1,000 different types of credit scores out there, but only a couple credit scores are widely known and used.

They include FICO score and VantageScore. Both have similar credit scoring algorithms, but a different credit score scale. FICO credit scores range from 300-850, while VantageScore ranges from 501-990.

Who reports credit scores?

These credit scores are reported by the three major credit reporting agencies, including Equifax, Experian, and TransUnion.  They compile your credit history and come up with credit scores based on the algorithms mentioned above.

Each credit bureau receives data at different times, and not all will report the same information, which explains why your credit scores will vary based on the agency used.

Some creditors may pull three credit scores in one credit report (tri-merge credit report) to determine your creditworthiness.  If this is the case, they will likely rely on the mid-score to determine where you stand.

Regardless of the credit score used or the credit bureau reporting the data, the same principles of good credit apply.  If you pay bills on time, keep balances low, and apply for new credit sparingly, you’ll do just fine.


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