What is a credit score?
A credit score is a three-digit number that summarizes an individual’s creditworthiness — how likely they are to repay borrowed money. Lenders and service providers use it to decide whether to extend credit, how large a loan or deposit may be required, and what interest rate or terms to offer. The most widely used model was created by Fair Isaac Corporation (FICO) and runs on a 300–850 scale.
How credit scores are produced (brief)
Credit scores come from information in your credit reports, which record your active accounts, outstanding debt levels, and repayment history. The three major U.S. credit reporting agencies — Equifax, Experian, and TransUnion — collect and maintain these reports. Each bureau can have slightly different data, so scores can differ across bureaus. FICO generates a separate bureau-specific FICO score for each agency; VantageScore produces a single tri-bureau score that combines data from all three.
What counts as a “good” credit score
Scoring models and individual lenders use their own cutoffs, but a common categorization is:
– 580–669: Fair
– 670–739: Good
– 740–799: Very good
– 800 and above: Excellent
Why your score matters (concise)
Higher scores increase the chance of approval for loans and credit cards, and typically lead to better interest rates and lower costs over time. Scores influence non-loan outcomes too — deposits for utilities, renting apartments, or even some employer screening decisions.
Practical steps to improve your credit score
The full calculation uses several broad categories of information; updating or correcting your underlying credit report will change your score when the bureaus receive new data. Below are practical, commonly recommended actions you can take.
Step-by-step checklist
– Review your credit reports from Equifax, Experian, and TransUnion for accuracy. Dispute errors you find.
– Pay at least the minimum on time every month; payment history is critical.
– Avoid closing old credit accounts you don’t use — they contribute to your available credit and account history.
– Keep individual card balances low relative to card limits. (Higher balances can hurt.)
– Remove unnecessary autopay links or set alerts on unused cards you keep to monitor fraud.
– Check unused cards periodically (every 6–12 months) to ensure no unauthorized charges.
– Consider tools that add positive payment data (for example, services that report on-time rent or utility payments) if available in your market
– Consider tools that add positive payment data (for example, services that report on-time rent or utility payments) if available in your market.
How long until you see improvement?
– Immediate (days to weeks): Some actions update quickly. Paying an old balance or reducing credit-card utilization can show up on new reports the next time issuers report balances (often monthly).
– Short term (1–3 months): Correcting an error after a successful dispute can change your score within one to two reporting cycles. Paying off collections that are later marked “paid” may help more slowly.
– Long term (6+ months to years): Factors tied to account age (length of credit history) and the mix of credit accounts change only with time. Negative items (late payments, bankruptcies) generally remain on reports for 7–10 years, with their impact diminishing over time.
Worked numeric example — credit utilization
– Formula: credit utilization (%) = (total outstanding balances / total credit limits) × 100.
– Example: Card A limit $5,000, balance $2,500; Card B limit $3,000, balance $1,500.
– Total balances = $2,500 + $1,500 = $4,000.
– Total limits = $5,000 + $3,000 = $8,000.
– Utilization = (4,000 / 8,000) × 100 = 50%.
– If you pay $3,200 off Card A (new balances: Card A $0, Card B $1,500):
– Total balances = $1,500; utilization = (1,500 / 8,000) × 100 = 18.75%.
– Practical target: many experts recommend keeping utilization below 30% per card and across all cards; lower (under 10–20%) can be better for score impact.
How lenders and scoring models typically use scores
– Credit score (a numerical summary of credit risk) is one factor among many lenders use to decide approval, interest rates, and credit limits. Lenders may also consider income, employment, debt-to-income ratio, and recent credit inquiries.
– Common score ranges (example: FICO and VantageScore use 300–850 scales). Typical buckets: poor, fair, good, very good, excellent. Exact cutoffs vary by lender and scoring model.
Disputing errors — step-by-step checklist
1. Get copies: Obtain your credit reports from Equifax, Experian, TransUnion. You’re entitled to free copies annually in many jurisdictions; in the U.S. use AnnualCreditReport.com.
2. Identify errors: Note account details, the error type (wrong balance, duplicate, identity mix-up), and the source bureau listing it.
3. Collect evidence: Statements, letters from creditors, payment receipts, or identity documents that support your claim.
4. File the dispute: Use the credit bureau’s online dispute portal or send a certified mail letter. Include a clear explanation and copies (not originals) of supporting documents.
5. Track timelines: Bureaus generally must investigate within ~30–45 days and inform you of results. If corrected, request updated copies and notify creditors or lenders that rely on the report.
6. Escalate if needed: If the bureau or furnisher (creditor) does not resolve a verified error, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or consider legal counsel for unresolved identity theft or fraud.
Common pitfalls and myths
– Myth: Checking your own credit score hurts it. Fact: “Soft inquiries” (your own checks) do not affect your score. Only “hard inquiries” — when lenders check for credit decisions — can lower scores temporarily.
– Myth: Closing unused cards always helps. Fact: Closing accounts can reduce total available credit and shorten average account age, sometimes lowering scores.
– Pitfall: Focusing only on one card. Your overall utilization across all cards matters more than a single-card balance, though individual-card limits/usage are considered by some models.
When to consider professional help
– Consider a non‑profit credit counselor for budgeting and debt management if you’re struggling to make payments. Look for certified counselors (e.g., National Foundation for Credit Counseling in the U.S.).
– Be cautious of “credit repair” companies that promise fast fixes for a fee. Legitimate errors can be disputed for free; reputable services will explain realistic timelines and limitations.
Quick action checklist (what to do this month)
– Pull your three-bureau credit reports and review for errors.
– Set autopay or calendar reminders to avoid missed payments.
– Pay down high-card balances to lower utilization below 30%.
– Avoid new hard-credit pulls unless necessary.
– Document disputes and keep copies of all correspondence.
Selected sources for further reading
– Consumer Financial Protection Bureau (CFPB) — Credit Reports and Scores: https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/
– FICO — What Is a FICO Score? https://www.fico.com/solutions/our-score
– AnnualCreditReport.com — Free credit reports from Equifax, Experian, TransUnion: https://www.annualcreditreport.com
– Experian — How Credit Scores Are Calculated: https://www.experian.com/blogs/ask-experian/how-credit-scores-are-calculated/
Educational disclaimer
This information is educational and not individualized financial advice. For personal credit or legal concerns, consult a qualified financial counselor, credit bureau, or attorney.