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Discovering the ins and outs of a credit score and what it means for your finances

What You Need to Know About Your Credit Score

If you've ever applied for a credit card, mortgage, loan or any other line of credit, chances are your financial institution has relied on your credit score to help them decide your creditworthiness.

Your three-digit credit score — typically between 300 and 850 — lets lenders know whether or not you’re likely to repay your debts on time. Based on information found in your Experian, TransUnion or Equifax credit report, your credit score is calculated using your payment history, total credit usage and balance, credit mix, loan payments, open accounts, bankruptcies and collections, and the length of your credit history, among other factors.

Credit Score Ranges

  • 800-850: Excellent
  • 740-799: Very good
  • 670-739: Good
  • 580-669: Fair
  • 300-579: Poor

What Do The Ranges Mean?

A higher score (“excellent”, “very good” and “good”) means you’ve demonstrated responsible borrowing and repayment and you’re likely to qualify for better interest rates and credit terms as a result.

A lower score (“fair” and “poor”) means you likely have multiple negative factors on your credit report, making you a high credit risk to lenders. A lower credit score can make it more difficult for you to obtain a loan or other line of credit, and you could pay higher interest rates if you do.

Who Determines My Credit Score?

There is no one company or organization that determines your credit score, meaning you might actually have several different ones. FICO and VantageScore are the two most common, with FICO being the one most used by lenders.

How Do I Check My Credit Score?

There are a few ways to check your score; some are even free.

Your Credit Card or Loan Company

The easiest — and cheapest — is by checking your credit card or other loan statement. Many credit card and auto loan companies now provide credit scores for customers on a monthly basis. Start by logging in to your account online or checking your monthly statement.

A Credit Score Service

There are scores (no pun intended) of websites advertising free credit scores. Websites like Credit Karma offer free credit scores, as does Credit Sesame. Many sites that advertise “free credit scores” often require that you sign up for credit monitoring or even pay a subscription fee just to see it. Make sure you know what you’re paying for before you choose this option.

Buy It

One of the most secure ways to find your credit score is to pay for it. FICO offers three different options for checking your credit score, ranging in price from $19.95 to $39.95.

How Often Should I Check My Credit Score?

Checking your credit score on an annual basis is sufficient, though many people prefer to do it quarterly or monthly. It’s entirely up to you. Remember, it’s not what changes month-to-month, but rather your score over time that makes the most difference, especially if you’re looking to make a big purchase in the near future.

How Can I Improve My Credit Score?

Your credit score is not static and changes whenever new information is added. When you pay off a credit card or take out a loan, your credit score will reflect the changes.

Here are a few tips for simple ways to improve your credit score:

  • Make all of your credit card and loan payments on time. Payment history accounts for 35% of your credit score, so staying on top of your bills is key toward bumping that score.
  • Check your credit report for errors. Because your credit score pulls from your credit report, making sure that information is accurate is important. If you see something amiss, make sure you contact the credit reporting bureau to fix incorrect information.
  • Pay off your credit card balances. Your credit utilization accounts for 30% of your credit score, so the more you can reduce your balances, the better your score will be.
  • Don’t close your credit cards after you pay them in full. Your credit utilization is a large portion of your credit score, which means that closing cards can negatively impact the amount of credit you have available. It's often better to keep your cards open once they are paid in full.
  • Consider the implications of paying off installment loans early. It might feel good to pay off that student or car loan early, but consider the impact it could have on your credit score. A good credit mix should include both installment loans (mortgage, student loans or car loans) and revolving lines of credit (credit and retail cards) and counts for 10% of your overall credit score. Paying off an installment loan could create an imbalance in your credit mix, potentially causing a dip in your score.
  • Request a credit line increase. It never hurts to ask your credit card company to bump your credit limit. If your account is in good standing, the increase could help lower your credit utilization rate as long as you resist the urge to spend it.
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