Your Credit Score and Its Meaning Explained

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Figuring out what your credit score actually means can be a little difficult if you don’t know what to look for, so check out this helpful guide to your score meaning!

Most Americans have an average credit score of 700.

But what does this actually mean?

Credit scores are numbers assigned to consumers based off of their credit history. This history can include the credit cards you use, how many loans you have, and your ability to make payments on time. However, there’s a lot more that goes into your credit score than meets the eye.

Becoming well-versed in your credit score meaning can help you make financially sound decisions in the future.

In this post, we’ll look at everything you need to know to decipher your credit score today!

Your Credit Score Meaning: The Basics

In a nutshell, your credit score is a specific number assigned to you by a credit bureau. There are three main credit bureaus: TransUnion, Experian, and Equifax.

Your credit score essentially signifies your “creditworthiness.” In general, creditworthiness equates to your ability to manage and repay debt.

A credit score is different from a credit rating, which takes the form of a letter assigned to individuals based off of their solvency. To learn more about the difference between credit scores and ratings, visit Wire Lend.

A lot of people assume that the word “debt” is always negative. However, an individual can build positive credit by responsibly managing debt.

In fact, building high credit can be an asset for anyone who wants to take out any kind of loan in the future. Good credit can influence auto insurance premiums, the amount of money you wish to take out, and your eligibility for certain credit cards.

Your credit score will fall in the range of 300 to 850. 300 is the lowest credit score you can achieve and considered “bad” credit, while 850 is the highest (“excellent” credit).

It is possible to have different credit scores as reported by the different bureaus. This is because financial institutions may not report to all three religiously.

Experian also calculates credit scores beginning at 330 (rather than 300). Equifax calculates credit scores beginning at 280.

To make up for this difference, the credit bureaus have created VantageScore 3.0, a system that takes the past two years of credit history into account when crafting your score. Vantage 3.0 scores fall between 300 and 850.

What Impacts Your Credit Score

So what actually goes into your credit score? More things than most consumers realize.

The length of your credit history can influence scores. In general, the shorter your credit history, the lower your credit is likely to be. This is why people have to “build” credit in the first place.

The number of accounts you have open, including installment loans and credit cards, also factor into your credit score.

Your ability to pay bills for these loans and accounts greatly impacts your credit score, too. After all, your credit score gives lenders a quick overview of your “creditworthiness”–borrowing reliability, that is.

Lastly, your credit utilization is an important part of your credit score. This refers to how much of your loaned amount you are actually using and is often in a percentage form.

For example, if you currently owe $500 on your credit card that has a limit of $5,000, your credit utilization ratio is 10%.

Your personal information, such as age, race, gender, and income, do not influence your credit score whatsoever.

Why Scores Change

Your credit score is apt to fluctuate between bill periods. In fact, it’s quite normal for consumers’ scores to change dramatically over time.

Factors that can negatively influence credit scores include debt collections, missed or late bill payments, declaring bankruptcy, and “hard” credit checks (conducted by lenders).

Having a short credit history, high credit utilization ratio, or too many open accounts can also cause a credit dip.

It is hard to predict how many points any of these factors will take away from your score. Dips are entirely variable between users.

Thankfully, most credit reports will provide information designed to explain changes in your credit score.

On the other hand, good standing on your accounts over time can positively influence your credit score. You can achieve good standing by keeping a low credit utilization ratio of 30% or less.

A longer credit history, healthy credit mix, and consistent on-time payments can also spike scores.

Obtaining a Credit Score Report

The best way to get a detailed analysis of your credit score is by obtaining a credit report. Luckily, you can get your report for free from a variety of sources.

All of the credit bureaus offer one free copy of credit reports to consumers a year.

However, it is also possible to receive detailed information on your credit via credit card companies. Individuals who have accounts through Discover Bank, for example, have free access to their credit scores at a glance.

Discover also provides a “scorecard” designed to give users insight into changes in their scores and more.

Credit reports, however, will give users the most up-to-date information about their credit history.

It is important to note that credit reports often have mistakes. It’s important to inspect yours annually to ensure that the credit bureaus have the right information at all times.

If you do discover an error of any kind, you can file a dispute with a bureau securely through their website.

Deciphering Your Score

So, all in all, what do you do with that three-digit number?

For most consumers, credit scores are an afterthought. They may become important when applying for mortgages or other loans, but other than that, they may not feel that pressing.

However, knowing where your credit score hovers can help you more effectively navigate your financial future. It can help you anticipate mortgage options and rates.

It can also influence your decision to finance a vehicle, take out a personal loan, or open a new credit card account.

In general, you have excellent credit if your score is 750 or above. Good credit lies between 700 and 749, while fair credit falls between 650 and 699.

You’re considered to have poor or bad credit  if you maintain a score of 649 or less.

In general, aim for at least a 650 credit score.

Final Thoughts: Your Credit Score Meaning

Your credit score is an essential component of your financial standing. It plays a huge role in your ability to get approved for loans and other credit-building accounts.

Deciphering your credit score meaning is easier said than done. However, keeping in mind what factors influence your credit score is essential.

In this sense, your credit score represents your account standing, credit utilization, and length of credit history. Changes in these factors will also result in credit score changes.

We recommend obtaining a credit report annually to get a detailed analysis of your score.

Want to find out more about credit? Curious about building credit without using credit cards? Find out more here.