Your credit score is a three-digit number that gives potential lenders an idea of how likely it is that you’ll be able to pay off debt. It measures your riskiness as a borrower. The higher, the better: most credit score ranges begin at 300 and increase until 850. If you have a score of 850, you get a million gold stars and the best possible loan options. If you have a score of 300, you’ve made some mistakes that lenders won’t love. Most people fall somewhere in the middle.
What are the different credit score ranges and what do they mean? How do you bump yourself up to the next range? When did credit score ranges come into existence, anyway? We’ll break it all down for you.
Credit Scores are a Good Thing (Really!)
Before credit scores came into existence, lending money was a pretty subjective business. The company known today as Equifax was the first credit reporting company, and it was created in the early 20th century as the Retail Credit Company. The Retail Credit Company allowed lenders to share information about consumers so that if a consumer was consistently missing payments to one company, other companies would know to steer clear of lending more money to him.
Credit reporting became a larger and more established business throughout the 20th century, and the predictive analytics company Fair, Isaac Corporation was founded in 1956.
Sound familiar? That’s the full name of the company you probably know as FICO. FICO scores took available information about your credit and used a special algorithm to convert it into scores. By 1989, they were making those scores publically available to lenders.
The credit reporting industry is regulated by the Fair Credit Reporting Act, passed in 1970. Up until then, all sorts of personal information was collected and tossed into your credit score—including your political activity and your drinking habits, reports Wired. (Somehow, these bits of information were deemed helpful to lenders trying to figure out how likely you would be to pay back your debts.) The FCRA got rid of those practices and made it possible for you, as a borrower, to have access to your own credit report. It also set a legal procedure in place for disputing credit scores.
Over the past few decades, credit score algorithms have changed to keep up with new data reporting practices and consumer demand, and there are now many slightly different versions and different credit score ranges. Still, the FICO score remains king, and people will often use “FICO score” and “credit score” interchangeably, even if they’re referring to a different kind of credit score.
What are Credit Scores Used For?
Any time you need to “borrow” money in some sense, a lender will check your credit score. Looking at that three-digit number gives them a good idea of what kind of borrower you’ve been in the past.
Lenders then use this information to figure out two things:
- Whether or not they should lend money to you in the first place.
- If yes, then the terms that they should offer with the loan or the line of credit.
If you have excellent credit, the answer to the first question will almost always be “yes,” and the terms you’re offered will be better: lower interest rates, fewer additional requirements, and all that. If your credit is good or fair, you’re likely to receive offers, but they might come with higher rates or require you to put down deposits, collateral, or guarantees. If your credit is poor, you might not get offers in the first place.
Credit Score Ranges
Let’s learn a bit more about different kinds of credit scores—and the credit score ranges they come with.
Different score versions
The most important thing you need to understand about credit score ranges is that there are many different versions of credit scores. FICO alone has 19 different versions. (This is why we called this article “ten-ish” types of credit scores!) The good news is that most scales range between 300 and 850 points, so they’re relatively easy to compare.
Why are there so many versions of credit scores?
The main reason is that there are a number of factors that credit score algorithms take into account. Payment history, credit utilization, length of credit history, new credit accounts, and types of credit are the big 5. Each algorithm will weigh these factors slightly differently, or focus only on one.
Within FICO itself, there are older and newer versions of their algorithm. Every few years, FICO releases a new version of the FICO Score, designed to take into account the current market, new developments in data reporting, and lender requirements. The current FICO Score, FICO Score 8, has been adjusted to give more weight to the credit cards you use more often and to be slightly more forgiving with isolated late payments.
This new score isn’t necessarily used everywhere, though: lenders are sometimes slow to upgrade to the current version. FICO also offers industry-specific scores, like the FICO Auto Score, which is tailored to the purchase or leasing of a car. FICO’s website offers a helpful chart showing which industries, lenders, and credit-reporting agencies use each type of FICO Score. They also point out that the basics of excellent credit remain the same: make payments on time, keep your balances low, and only open new credit accounts when needed.
For you, this means that your credit score is not always going to be the same no matter where you look. One credit reporting website may report your score as 680, while another lender may report it as 695. So according to one chart, your score might be “good,” while for another it could be “fair.”
Are you just making those words up?
In addition to having a three-digit number, you also have a word to describe your credit score, depending on how high your number is.
FICO scores generally fall along these lines:
- 300 to 629 is bad
- 630 to 689 is fair
- 690 to 719 is good
- 720+ is excellent
How do those credit score ranges get calculated?
Credit score ranges get calculated using 5 factors: payment history, credit utilization, length of credit history, new credit, and credit mix. For FICO Scores, reports Bankrate, the percentages are as follows:
- Payment history: 35%
- Credit utilization: 30%
- Age of credit history: 15%
- New credit: 10%
- Credit mix: 10%
Payment history, the most important part of your credit report, is pretty much exactly what it sounds like. Have you paid your bills on time in the past, and if not, how late were they? The later your payments were, the more drastically your credit score was affected. Creditors often won’t report payments that are late by less than 30 days, however. The recentness of the late payment also plays a role: late payments can stay on your credit report for 7 years, and more recent late payments are worse for your score. If you have excellent credit, a single recent late payment can drop your score by up to 100 points.
Credit utilization refers to the amount of credit you use as a percentage of the credit that’s offered to you. 30% or less is the generally accepted guideline, so if you have a single credit card with a limit of $2,000, you shouldn’t put more than $600 of purchases on it at a time. Credit utilization is counted both per card and as a total of all cards—so with that example, even if you have a second card with a limit of $10,000, you shouldn’t max out the first card even though your total credit utilization would still be less than 30%.
New credit refers both to the number of credit cards or loans that you’ve applied for recently and inquiries into your credit score, both of which can negatively affect the score. If a credit inquiry requires an application for credit—meaning that you’ve applied for a mortgage and the bank has checked into your credit score, for example—then it’s called a hard credit inquiry and will decrease your credit score. If it’s informational only, it’s called a soft credit inquiry.
Age of credit history looks into how long you’ve had a credit account. The older your record is, the better.
Credit mix is a little complicated to get into for this article, but there are 3 types of credit: revolving credit (like credit cards), installments (like loans), and open accounts (like cell phone bills). The way that you pay off each type of credit is slightly different. Successfully paying off a variety of different types of credit will make your score higher than if you’ve only applied for one kind.
Keeping track of your credit score
There are 3 major credit reporting agencies in the United States for personal credit: Equifax, Experian, and TransUnion. You can request one free report per year from each agency. For any additional reports, you’ll need to pay up.
Some credit cards also offer their own credit score tracking systems, and some websites—like CreditKarma or Fundera!—let you check your score for free. But each tracking system and each website uses a different credit scoring system.
Let’s talk about some different credit score ranges you might see, aside from the FICO score and its 300 to 850 numerical scale. Another popular type of credit score range you might come across is VantageScore, which is used less often by credit card companies but more often by credit reporting agencies like Experian, TransUnion, and Equifax. That’s because those agencies joined forces in 2006 to create their own algorithm, which became VantageScore.
VantageScore’s credit score ranges can get a little confusing because they’ve changed recently: they used to use a scale from 501 to 990, but the newest model, VantageScore 3.0, uses the same 300 to 850 scale as FICO. They also use a letter grade system—A to F—instead of bad, fair, good, and excellent. You can look here to see how the two numerical scales line up with each other:
The algorithms for VantageScore and FICO are a little different, which means that your scores can vary by quite a few points. VantageScore requires less credit history than FICO to create a credit report, for example, so people without very much credit at all could have a VantageScore but not a FICO score. They also weigh mortgages more heavily than other types of loans and analyze hard credit checks differently.
Bureau-specific credit scores (and credit score ranges)
Remember how we said that for personal credit, Experian, Equifax, and TransUnion were the three major reporting agencies? And that the VantageScore was a combined effort between the three of them?
Each of these agencies also has their own specific way of measuring scores. Experian, for example, owns a business called Experian Decision Analytics, which developed a PLUS score on the scale of 330 to 830. The Equifax Credit Score ranges from 280 to 850. TransUnion uses the TransRisk New Account Credit Score, from 300 to 850.
And… there’s still more!
CreditXpert is a service that both provides you with a credit score (on a 350 to 850 scale) and helps you figure out how to improve your score. For example, it has a simulator tool that lets you see how your score might change based on hypothetical credit decisions, like applying for a mortgage or missing a payment.
There are still more types of credit scores that you might run into, but FICO and VantageScore are by far the most important. FICO scores are so ubiquitous that non-FICO scores are often called FAKO scores. It’s a cringe-worthy pun, and also a little unfair: scores that aren’t FICO aren’t fake or useless, just not used very often. But you get the point.
What If I’m Not Even on the Credit Score Ranges Chart?
Only adults who have borrowed money or applied for credit in some sense will have a credit report, so if you’ve never gotten a credit card or applied for a mortgage or student loan, it’s possible that you don’t have a credit score. But there are some unexpected purchases that can pop up on credit reports—gym memberships, for example—so don’t assume that you’re floating under the credit radar until you’ve checked.
What about business credit score ranges?
You know that business credit is incredibly important for your small business’s financing: it’ll help you score loans and business lines of credit at the best possible interest rates. You’ll need to know your business credit score whenever you apply for financing, so note that its scoring differs from personal credit.
First, business credit score ranges begin at 0 and end at 100, as opposed to the 300-850 scale of FICO and VantageScore. Second, there industry has no standardized algorithm, so each credit bureau calculates its score slightly differently.
The main business credit bureaus are Experian, Equifax, and Dun & Bradstreet. Dun & Bradstreet is used exclusively for business credit, whereas the other two will also report personal credit.
Dun & Bradstreet uses a number called a PAYDEX score to reflect your business’s payment history. You have to apply for a PAYDEX score. It’s measured on a scale from 0 to 100, where 80 to 100 is good (meaning that from the lender’s point of view, you’re at low risk for a late payment), 50 to 79 is fair (medium risk) and 0 to 49 is bad (high risk). Paying on time or before will earn you a score of at least 80, up to 30 days late will put you in the middle category, and beyond that lands you in that last high-risk bracket. Dun & Bradstreet then combines this number with a credit score and a “financial stress” score, both of which match your company with similar companies and analyze how often those companies pay on time. These numbers are measured on a scale from 1 to 5, where 1 is the best score.
Equifax measures its “Payment Index” on a scale of 1 to 100, just like the PAYDEX score. It combines that with a credit risk score from 101 to 992, which looks at factors such as available credit and length of credit history, and a business failure score from 1000 to 1,880, which is designed to assess your business’s risk of closing.
Experian offers Intelliscore reports, which are more like traditional personal credit reports in that they take multiple aspects of your business’s credit into account, not just payment history. (Think back to those 5 factors that make up a FICO score.) Like other business credit scores, Experian Intelliscores are measured on a scale from 1 to 100.
Unfortunately, checking your business credit score will cost you up to $100 for a report from one of the three agencies, even if you’re the owner of the business. It’s a necessary evil. The good news is that, by shelling out, you get better service: Dun & Bradstreet, for example, will keep you updated about any changes to your business credit report.
There’s also a version of the FICO score specifically for small businesses, known as FICO’s Small Business Scoring Service (SBSS). This score, based on both your business and personal credit, ranges from 0 to 300 and is the principal score used by the Small Business Administration when they’re evaluating your candidacy for a loan. A score of at least 140 is considered fair, and the minimum requirement for many lenders is 160. The SBSS isn’t as well known as the bureau-specific business credit scores, but is extremely important—especially if you’re looking into SBA loans.
Checking your credit score frequently is valuable because it gives you a clearer picture of your loan eligibility. It also lets you check for errors. Sometimes your name, address, or social security information is entered wrong, and you might see that a crucial credit account or loan is missing from your report. In this case, you can dispute the error.
The important thing to remember when checking your credit score is that you have different types of credit scores, so it’s impossible to track small changes over time if you’re always changing your source of information. Think of your credit score like your weight. There’ll be small fluctuations over time, which don’t necessarily mean anything, and larger trends, which do—unless you’re always using different scales! To see an accurate picture, make sure you check your credit score using the same scale every time.
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from Fundera Ledger https://www.fundera.com/blog/2016/04/12/credit-score-ranges/