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10 Things Everyone Should Know About Credit Scores

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Every adult should maintain their credit score, but not everyone knows the ins and outs of credit. When it comes to credit, there’s a lot to know–how credit works and what a credit score means, not to mention the different credit bureaus. This guide gives you the rundown on the basic credit facts so you can have a better understanding of how to manage yours effectively.

1. Credit Reports Are Different from Credit Scores

While your credit score is definitely tied to your credit report, it’s technically a separate thing. Your credit report is a thorough record of your credit history, including your credit accounts, how often you apply for credit, debt collection accounts and some public records, including judgements, liens and bankruptcies.

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    Think of your credit score as a numerical summary of all these factors. If you have delinquent accounts on your report, that brings your credit score down. If you have a strong on-time payment history, that brings your credit score up. Most lenders only look at your score, and this is why it’s important to check your credit report regularly and ensure everything is accurate. Both your credit score and credit report are kept by the three credit bureaus.

    2. Your Scores Are Based on Five Core Factors

    While your credit score is one number, it actually is influenced by five separate factors:

    • Payment history: This refers to how often you have a late payment and is the most important factor, accounting for 35% of your score.
    • Credit utilizationThis is around 30% of your score and takes into consideration how much of your available credit you’re using. Your credit utilization ratio should be less than 30%, which means if you have a $10,000 credit limit, you’re only carrying a balance of $3,000 or less. Keep in mind this means across all cards, so it’s OK if the individual debt to available credit ratio on a single card is above the 30% guideline.
    • Average age of credit accounts: The older your credit accounts are, the better. This shows a long-term history of responsible financial management and accounts for 15% of your credit score. More than 10 years is considered excellent, so even if you’re not using your first credit card from college anymore, you may want to keep it open to help increase the overall average age.
    • Account typesA few revolving accounts such as credit cards as well as installment accounts such as car and home loans show lenders you’re responsible in managing multiple types of debt. Your credit mix contributes to 10% of your score.
    • Inquiries: When you apply for credit, lenders typically do a hard pull on your credit, which results in an inquiry on your credit report. The more inquiries you have, the lower your score because lenders get nervous when they see someone applying for multiple lines of credit at once. This is the least important factor, however, making up only 10% of your score.

    3. You Can Get Your Scores & Reports for Free

    You’re legally entitled to a free copy of your annual credit report from each of the three major credit bureaus—Equifax, Experian and TransUnion. That means you can check your credit report every four months if you cycle through the credit bureaus. This can help you catch any inaccuracies in a timely manner so you can dispute them and ensures you have an accurate overall picture of your financial situation.

    You can also get your credit score for free from various places. Many major credit card companies offer access to FICO scores as part of their customer perks, and you can also get a score from

    4. Checking Your Own Score Won’t Hurt It

    While it’s true that too many hard inquiries have a negative impact on your score, the effect is small and temporary. There’s also an exception made if you’re applying for the same type of loan in a short period of time, so you can shop around for the best deal on a car loan without worry about your credit taking a hit. If you’re checking your own score, however, there’s no penalty, and it doesn’t show up on your credit report as an inquiry at all.

    5. There Are Different Scores and Score Ranges

    Each of the three major credit bureaus, as well as the newer VantageScore, has their own scoring model with differing ranges. Your score changes depending on which one you’re looking at. It’s important to know what the range is for the score you’re looking at and not to rely too heavily on just one bureau’s score.

    • Experian: 360-840
    • Equifax: 280-850
    • Transunion: 300-850
    • VantageScore: 501-990

    6. Your Credit Can Help You Spot Fraud

    If you’re keeping an eye on your credit score and pulling your free credit report every four months, you’ll be much more likely to spot problems that indicate you could be the victim of identity theft. For example, if you get a notification that your credit score has dropped and see that there’s a new account you didn’t open or a credit card you haven’t used in months suddenly has a huge balance, you’ll be able to take action immediately.

    7. Your Credit Score Can Cost You Thousands Over a Lifetime

    Having a less-than-great credit score means you’re also getting less-than-great terms on credit cards and loans. The biggest factor in this is interest. As a general rule, the lower your credit score, the higher your interest rate, and that can add up to paying thousands more over your lifetime for access to credit than you would with a better score. Even raising your score 100 points or so can save you a lot of money in the long run.

    8. There’s No Such Thing as a Joint Credit Score

    If you’re married, have joint accounts or are just sharing credit with an authorized user, you may be concerned about how it can affect your credit. Credit scores are individual, so even if the other person has poor credit and you add them to your credit card, your score won’t go down.

    However, if the person doesn’t make a payment as agreed or racks up a big balance, it can affect your score because it’s still technically your account. Whenever you share credit, make sure you’re aware of who will be responsible and who will be affected if a payment is missed.

    9. Negative Information Eventually Ages Off

    We all make mistakes, and if you have some not-so-great moments in your credit history, you may be relieved to hear that they will eventually drop off your credit report. As long as you keep your credit in good standing moving forward, eventually any past mistakes won’t be a factor.

    10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions

    While your credit score can impact a lot of your ability to access credit, it isn’t the only thing lenders consider. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender. In some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products. This is usually most effective at smaller institutions such as local banks or credit unions, where you’re more likely to be able to talk to the decision-maker and have someone look at your entire financial picture instead of just your score.

    Credit Score FAQs

    A survey from the Consumer Federation of America (CFA) and VantageScore Solutions, LLC, found that while a large majority of consumers know the basic facts about credit scores, they’re still lost when it comes to some important details. To help alleviate some of the confusion, here are a few short answers to some common credit questions.

    1. How do you build credit?

    The best way to build credit is to focus on those five factors that determine your credit score, which means using credit sparingly and responsibly, only applying for credit you can afford and making payments on time. It takes years to build good credit, but it’s worthwhile to be patient.

    2. Is it ever too late to build credit?

    No, it’s never too late. No matter where your credit score is, it can always be improved, and it’s often easier to do this later in life when you’re often more stable financially. You can attempt credit repair on your own, or you could enlist the services of one of many credit repair companies.

    3. How do student loans impact your credit?

    As long as you’re keeping the account in good standing and making payments on time, it can be a good thing because it adds variety and age to your accounts. However, late or missed payments will bring your score down quickly.

    4. How do you get credit when no one wants to give it to you?

    Secured cards and other credit cards designed for people with bad or no credit are a good option if you can’t get a traditional card. With this type of account, you charge very little—think $20 a month—and make on-time payments to start building your credit. You can also be added as an authorized user to a friend or family member’s credit card if they’re willing, and some companies can help you get loans based on a responsible payment history when it comes to rent or utility bills.

    5. What is a FICO score and what does it mean?

    FICO is a data analytics company that specializes in credit scores. A FICO score is just one version of the many credit scores used by lenders. In fact, there are 9 major incarnations of FICO scores themselves. Most are based on those five credit scoring categories mentioned earlier.

    6. What is a good credit score?

    Credit scores vary by model, but for most scores, not including the VantageScore model, the general ranges are:

    • Excellent: 800+
    • Very Good: 740-799
    • Good: 670-739
    • Fair: 580-669
    • Very Poor: 350-579

    7. What percentage of the population has a credit score over 800?

    As of April 2018, FICO reported 21.8% of the population as having a credit score of 800 or better. So, around a fifth of the population has a n excellent score.


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      • Dennis Elliott

        Just curious, i’m thinking of purchasing my first home. If I have good credit as far as my current community is concerned, I.e. my bank, could they take over an foreclosure account from another bank in another state? And would this credit I have now, be as good in another state? I hope you have an answer, before I discuss this with my bank???

        Thank you!


      • Chris

        What is the name of the law regarding hard credit inquiries only affecting your credit score for 1 year instead of 2 years?

        • Credit Experts

          There is no law about that; it’s how credit bureaus work in practice.

          • Chris

            There was an article about it recently on where it mentioned it was a law. Is that not true? If it’s just a general practice by the credit bureaus, will they remove a hard inquiry after 1 year but less than 2 years?

            • Credit Experts

              Chris —
              The hard inquiries are not removed early; they are just not typically used to calculate scores after a year, even though they remain on the reports for two. You can read more here:
              What Is a Hard Inquiry?

      • dustin

        Will student loans come off your credit report if you do not pay on them for 7 years like other dept? I asked a loan officer at a bank when I got my last loan a couple yrs ago and he did not know the answer to the question. About two years ago when I checked my credit it looks like each of my loans, since I had ones for each yr I attended school through a community college had a month and yr that each would be coming off. Since the month and yr was the middle of last yr I ran my credit report a couple days ago for this yr through to see if they had came off my report. After reviewing my report it does not look like they are showing on there anymore. I should also includes that the loans where from edfinancial, and I have not ever made a payment on them since I graduated in 2007 due to financial reasons. Of course they went into default and I did try to sign up with a company once to make 9 payments to get them out of default, but since my payments was $500 and something after the 2nd payment I quit. Back to my question will student loan come off your credit report, since they are not considered in my depth/income ratio any longer will it make my credit score go up some? Yes I know I have been in the wrong in not paying them, but $50000 in student loans is not something that’s easy to make payments on. Like I said it looks like they are not on my credit anymore at least through experian, I have not got equifax or transunion report back yet. I was wondering if they only time that it would affect me, if they did come off my report is when I tried to get retirement later on in life since they are government loans. Just don’t know what to do and it is scary. Just never knew the answers to some of my questions so I hope you can help clear somethings up for me. I have to come up with a plan to get these off of me somehow but I don’t know where to start. Since my degree is business management, it does not fail into the depth forgiveness programs that have came out the last couple of yrs. Thanks for your time.

        • Credit Experts

          Dustin —
          Federal student loans are not like any other debt because they can’t be discharged in bankruptcy. They can also result in wage garnishment and in seizure of your tax return or a lien on your property (in other words, it can affect you long before retirement). There are numerous repayment plans, including income-based repayment. Here are some resources that may be useful to you:
          What Happens if I Ignore My Student Loans?
          How to Pay Student Loans You Can’t Afford

          • dustin

            I knew they couldn’t be discharged in bankruptcy, I also knew about the tax return situation. I elaborated to much on my question, but again back to my question of weather they come off your credit. Like I said a couple yrs ago I did see a month/yr they would be coming off and since I ran it the other day they are not on there from the one report that I got, so I guess they did. So If I was to go apply for a loan and the company run my credit my students loans would not affect my dept to income ratio anymore. I just wanted to know if they came off like other dept did after so many yrs.

            • Credit Experts

              Dustin —
              They are not supposed to come off. The Higher Education Act does not exempt colleges from reporting the information to credit-reporting agency. The 7-year reporting deadline does not apply, presumably because statutes of limitation do not apply, and the debt remains collectable (and so they should affect your debt-to-income ratio).

      • Cheryl

        What are alternative lenders? Due to serious medical problems my credit is in a bad place. 560 or so. I used to have 740. I need a small personal
        loan but am having problems finding one. (1500-2000).

        • Credit Experts

          Alternative lenders lend to people and small businesses who do not qualify for traditional loans. You might want to investigate peer lending (LendingClub and Prosper are the two biggest peer lenders).

      • susan

        If a judgment is dismissed in court, and taken off your credit report, why isn’t the late payments erased from your credit report also? Especially if the court deemed the lender at fault?

        • Credit Experts

          Susan —
          Have you tried disputing the information with the credit bureaus (and including documentation of the court action)?

      • Amy

        Up until November 2014 I maintained a credit rating around 760 for 20 years.
        In the fall of 2014 l was going through a divorce after 23 years. In October I was 32 days later for an American Express payment of $295.
        Before I was over 30 days late I went through the process of letting them know that i needed to split to make payments because I was going to be 30 days late on my payment on the full amount. I have been a member since 1997.However they still put me in the credit bureau after 35 days late. It was paid in full with in 2 days. I called and wrote them a letter in March to explained my error and they will not take any action
        Unfortunately a few weeks ago kohls department store put me in the credit bureau for being 31 days late on a 55 dollar payment. it’s just really an oversight on my part. I missed Aprils payment and when I went to do my bills this month I realized I had not made the payment. I immediately had my bank send them a check. It did not reach them until 34 days late.

        What do i do here? I have never had any other late payments. I need to refinance the house in my name in the next 6 months because my divorce is final and it now it will be difficult because my credit rating went to 659/685/685.

        • Gerri Detweiler

          Unfortunately, if the information is accurate there may not be a lot you can do. You can try appealing to those issuers to ask them to make a goodwill adjustment, but don’t be surprised if they don’t. Over time those late payments will carry less weight, but I know that’s not terribly helpful in the short term when you are trying to refinance.

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