Do you know what your credit score is? If so, is it a good credit score? What is a good credit score and how are credit scores impacted by different financial choices and life events? These are important questions that consumers need to know the answer to in order to manage their credit rating properly.
Your credit score can impact several areas of your life. Potential employers often check credit scores before hiring a new employee for a job. Insurance companies check credit scores and will often hike rates if they find their policyholder’s credit score has dropped. Rates on credit cards and loans will be higher for borrowers who have what the industry considers a “bad” credit score.
Read more: Clark's free credit report guide
So what is considered a “bad” credit score? What factors impact whether a person’s credit score goes up and down?
Credit Score Ranges
All three of the major credit bureaus: Experian, TransUnion and Equifax, give consumers a credit score. These three credit bureaus also report a person’s credit activity, based on information sent to them by the loan and credit card companies a person does business with. This information is then compiled into a listing known as a “credit report.”
The Fair Isaac Corporation, more commonly known as FICO, then compiles a standard credit score for each person based on the credit scores given and the payment history recorded by each of the three major credit bureaus. This standard credit score is known as a person’s FICO score.
A person’s FICO score can range between 300 and 850. The “goodness” of a credit score is broken down this way:
- Excellent Credit: 760-850
- Very Good Credit: 700-759
- Good Credit: 660-699
- Fair Credit: 620-659
- Poor Credit: 580-619
- Bad Credit: Below 580
What Impacts a Credit Score?
Several factors can impact a credit score. Some of those factors include:
- Timeliness of payments
- Amount of payments: paying above the minimum due consistently will raise your credit score
- Percentage of credit card balance used: credit cards that consistently have balances that are above 80% of their limit can lower credit scores
- Length of time an account has been open and active
- Total amount of debt
- Public records such as criminal records
- The number of open credit accounts a person carries
- The number and severity of late payments
All of these factors help influence what credit score a person is given. Credit scores are rated and changed on as much as a weekly basis, based on what information comes into the three major credit bureaus regarding a person’s credit and other activity. For instance, if a consumer has a long-outstanding bill that a company sends to a collection agency, and the collection agency reports to the credit bureaus that they’ve received a collection account for a consumer, the credit bureaus can lower that person’s credit score based on the information received. People with limited loan and credit activity, however, might not see their score change very often at all.
How Can a Person Protect/Improve Their Credit Score?
There are several ways consumers can protect or improve their credit score. Taking the following steps can help ensure that a person’s credit score stays high -- or increases -- as the length of time the person implements these best credit practices increases.
- Keep credit card balances below 75% of the available balance, or better yet, pay cards off in full every month
- Always pay more than the minimum due on a credit card
- Keep the number of credit cards and loans you apply for to a minimum
- Pay rent and other bills, such as utility bills, on time
- Check your credit score on an annual basis
How Do I Find Out What My Credit Score Is?
According to the government’s Consumer Financial Protection Bureau, all consumers are entitled to get one free copy of their credit report annually. This report is available at AnnualCreditReport.com. Your free copy of your credit report does not contain your FICO credit score: however, there is an option to get that score for a small fee through this site.
If a consumer is denied a loan or credit card, they are entitled to a free copy of their credit score, since they were denied credit based on that score. Many loan and credit card companies will include that credit score in their denial letter to the consumer.
Companies such as Credit Karma and Credit Sesame also offer services that include giving consumers access to their credit scores. And many of the banks that control our nation's credit card portfolio now make your credit score available online when you log in and on your monthly statement.
A good credit score impacts many areas of life, therefore it’s a good practice to manage daily finances in a way that helps ensure your credit score stays high.