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Credit Score: Definition, Score Ranges, and Checking It

Posted on by Dawna M. Roberts in LawFebruary 27, 2023

It’s important to know about and understand your credit score, but it’s not something you need to check every day. Credit reporting agencies Experian, TransUnion, and Equifax calculate your credit score and provide access to it for qualified businesses. Those who can see your credit score include banks, credit card companies, landlords, and sometimes, employers. A good credit score can mean the difference between leasing a new car or driving a beater, getting a mortgage or continuing to rent, and moving into management versus staying on the hourly wage circuit. 

Credit score ranges from 300 to 850. What is the highest credit score? 850, but only about one percent of people have that score. Those with good credit scores between 650 and 850 are considered a better risk for loans, expensive housing, and employment where personal responsibility and good judgment are essential. A better credit score can reduce your insurance payments, allow lower down payments, and lower interest rates.

What is the highest credit score? Regardless of the reporting company, the best score you can get is 850. How to improve your credit score? Learn more about it here.

credit score

What is a Credit Score?

A credit score is a number that represents the ratios of your debt to earnings and savings, as well as how responsible you are with money. Those who have mortgages and car loans that are paid on time have higher credit scores. Those with low credit scores either have little credit history or have defaulted on loans and showed other signs of poor money management.

The 1970 Fair Credit Reporting Act (FCRA) law required data collection companies to do away with information on consumers’ race, political leanings, and sexual preferences. The FCRA regulates what is contained in a credit report and how the data can be used. It also set guidelines for how long bankruptcy affects credit reports.

How are Credit Scores Calculated?

Two companies calculate credit scores, FICO and VantageScore. Within these models are more than a dozen possible scores for each person, depending upon what kind of credit application is submitted. The score used to decide on a student loan application differs from that provided to a mortgage company. The subject of the credit report will see a completely different score attached to his credit history. 

FICO and VantageScore ensure that scores provided to inquiries are somewhat uniformly derived, so people with the same credit histories will have similar scores. The average FICO score is 714, while the average VantageScore rating is 679.

While the two scoring algorithms used to have significant differences in scoring, they are mostly aligned now. The primary difference between FICO and VantageScore is the “tradeline” on your credit history. That’s a line of credit, credit card, or loan with some activity. FICO requires a tradeline more than six months old with some recent activity. VantageScore is easier, just requiring one tradeline with no minimum activity.

These are the factors that impact your credit score (most to least):

  1. Payment history, whether your loans are paid on time and in full, accounts for more than one-third of your credit score.
  2. Credit utilization score, or the amount you owe compared to your total available credit, is about one-third of your credit score.
  3. The years of credit history you have an impact about 15 percent of your credit score. This skews better for older people.
  4. About a tenth of your credit score is your mix of credit (loans, mortgages, etc.) and your new credit activity.

What Goes Into My Credit Score?

Companies may weigh information differently, so a credit score of 600 may get approval for one credit card, while another may require a score of 700. The data used to calculate your score includes:

  • The number of “hard” vs. “soft” inquiries on your credit score by outside companies can shift your score by a few points. Hard inquiries are in-depth investigations of your creditworthiness by lenders. In contrast, soft inquiries include background checks and information verification for prequalified loans.
  • Your past credit history is key to your credit score. Adverse events such as bankruptcy are required to disappear from your report after a specific period (usually seven years). 
  • Loan defaults and bills that go to collections agencies negatively impact your credit score.

Things That Don’t Affect Your Credit Score

Before the 1970s Fair Credit Reporting Act, almost any information could be collected and used against your credit score. This information included ethnic heritage, political stances, and race.

Now, things that do not affect your credit score include:

  • Traffic tickets can only negatively impact your score if they are unpaid and go to collections.
  • Getting married or divorced neither hurts nor helps your credit score unless either action results in unpaid debt.
  • Getting credit counseling, or help managing your debt, cannot be used against you through your credit score.
  • Being rejected for a credit card doesn’t negatively impact your credit score unless the “hard pull” of your score information is reflected in a minor way.
  • Using a debit or prepaid card for purchases does not impact your credit score.

How to Check Credit Score

Errors on your credit report are one reason to monitor your credit score. Sometimes information from a person with a similar name is incorporated into your credit report, resulting in a skewed score. You prevent these errors by checking your score and the data used to compute it. Each person is allowed a free opportunity to view and correct errors on their credit reports (from each reporting agency) each year.

Identity theft is a serious reason to monitor your credit score. By pulling your credit report, you may learn that someone has been impersonating you by getting loans or credit cards in your name.

If you know that your long-term plan is to purchase a home or seek a business loan, you should monitor your credit and work toward improving your score. Over several years you may strategically use loans and lines of credit to pump up your score and make you attractive to lenders.

How to Increase Credit Score

One of the easiest ways to improve your credit score is using your credit, particularly when you pay off your card balances each month. Mixing the types of credit on your report is a similar boost, such as having a car loan, a credit card, and a mortgage – all paid on time. Avoid too many “hard pulls,” such as multiple credit card applications in a short period, which is a red flag to lenders.


Building a good credit score is like driving a car: keep it between the lines and don’t go too fast or too slow. Your credit score should improve slowly and surely through the normal process of working and paying your bills. Still, knowing how credit scores work is important, and keeping tabs on your credit by getting free annual reports is essential.

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