What Is a Good Credit Score? Here’s How Your Score Works

Like it or not, your credit score is an important number. It often dictates what you can and can’t afford to purchase.

You’re probably already aware that credit scores exist, but do you know how they are calculated? Do you know what your credit score is?

Don’t bury your head in the sand. Read on to learn more about what makes up your credit score and steps you can take to improve it.

What Is a Credit Score?

Your credit score is a three-digit number designed to represent your credit risk to potential lenders.

Credit scores range from 300 to 850.

Low or poor credit scores make it harder for you to get a loan or credit card. If you do get either, your interest rate will probably be high.

High or good credit scores allow you to qualify for better loans and credit cards with lower interest rates and more favorable terms.

Your credit score is based on information inside your credit report. Credit bureaus, also known as credit reporting agencies, compile data into your credit reports, including information about your borrowing and repayment history.

There are three credit bureaus:

Credit reporting agencies maintain your credit reports — but they do not calculate credit scores. Instead, different companies use their own credit scoring systems to calculate your score.

What Is a Credit Scoring Model?

Your credit score can vary depending on the credit scoring model used to calculate it.

There are two main credit scoring models in the US:

  • FICO: The most established and widely used credit score model. It’s been around since 1989.
  • VantageScore: Started in 2006 as an attempt to introduce some competition for FICO and ensure credit reports and scores were calculated fairly.

Both FICO and VantageScore pull from the same data, but each credit scoring company weighs the information slightly differently.

There are also five other specialized and lesser-used credit scoring models:

  • TransRisk
  • National Equivalency
  • Credit Xpert
  • CE credit scores
  • Insurance…

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