Home > 2011 > Credit 101

Know Your Credit Score Basics

Advertiser Disclosure Comments 1 Comment

Understanding the ins and outs of your credit score can help you make wise financial choices.Your credit score is one of the most important components of your application for a line of credit. Your credit score is a determining factor in your mortgage and auto loan terms, credit card rates and insurance premiums. Some employers and landlords also take your credit (though likely not your actual credit score) into consideration. But what exactly is a credit score and how is it calculated?

Your credit score is a three-digit number, calculated based on information listed in your credit report, that lenders use to measure your creditworthiness and the likelihood you will default on your payments. Your credit score may range from between 300-850, the higher the credit score the better. The three main credit bureaus—Experian, Equifax and TransUnion—each hold a copy of your credit report, meaning that you actually have three credit scores, or one from each bureau.

How Is Your Score Calculated
There are different types of credit scoring models, and each may vary slightly. The details of your credit report influence how your credit score is calculated. These details include your payment history, debt balances, length of credit history, types of credit accounts you carry and how often you apply for credit. As these details change on your credit report, your credit score may fluctuate.

[Related: All About Credit Scores]

What Makes Up A Good Credit Score?
Lenders like to see that you’re managing your accounts responsibly, and there are a number of ways you can prove that you do. Paying your bills in full and on time and keeping your debt balances low show credit issuers that you can manage your credit line. Holding accounts for a long period of time and refraining from opening new lines of credit within a short time period can also improve your score. Lenders also like to see that you can handle a mixture of credit. This includes revolving debt, such as credit cards and non-revolving debt, such as a mortgage or auto loan.

Are There Actions That Hurt Your Credit Score?
Maxing out credit cards, paying bills late and constantly applying for new credit cards can have a negative impact on your credit score. Not having enough credit in your name will also cause your score to stay low.

Your credit score plays a significant role in your credit terms, insurance premiums and other important aspects of your life, so make sure you take steps to keep it healthy.

Note: An earlier version of this article noted that some employers take credit scores into consideration when evaluating job candidates. Employers very rarely if ever at all consider credit scores. They may, however, use credit reports when making hiring decisions. Credit scores are based on the information in credit reports.

[Resource: Not sure where you stand credit wise? Get your Free Credit Report Card to find out.]

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team