Credit scores can admittedly be confusing. There are lot of nuances that wind up making your score yo-yo — sometimes seemingly at random. But you can minimize any brain fog by learning a few fundamentals.
Here are five universal truths about credit scores.
1. You Have More Than One Score
Credit scores help lenders gauge a borrower’s ability to repay a loan as agreed, and because there are thousands of lenders and dozens of loan products, there are all sorts of credit scores.
2. But Their Building Blocks Are Similar
Having said that, most major credit scoring models consider the same things: your payment history, credit-to-debt ratio, the length of your credit history (how long you’ve had credit), the mix of your credit accounts and your searches for new credit. (You can see what your grade is in each of these categories by looking at your free Credit Report Card on Credit.com, which can show you areas of your credit history that may need work and provides access to two of your credit scores.)
3. And So Are Their Ranges
Most credit scores — including the FICO score and the latest version of the VantageScore — also operate within the same range: 301 to 850. And while underwriting requirements vary from lender to lender, generally speaking, these are the different tiers of credit:
- Excellent Credit: 750+
- Good Credit: 700 to 749
- Fair Credit: 650 to 699
- Poor Credit: 600 to 649
- Bad Credit: below 600
If you’re looking to work on your score month-to-month, it can be helpful to track a single score over an extended period of time, since it’s not a score-to-score comparison that’s helpful but rather a periodic review of the same scoring model that can provide the most insight. And, remember, no matter what score you’re seeing …
4. Your Credit Score Is Based on Your Credit Reports
Your credit scores are all generally based on the information in your credit report. Your credit report is a record of an individual’s financial history, and you’ll want to make sure all the information on it is accurate, as an error can needlessly harm your score. Under the Fair Credit Reporting Act, you’re entitled to a free credit report from each credit bureau every year. (Yes, you have more than one credit report, too.) You can pull these reports at AnnualCreditReport.com. If you spot an error, you’ll want to dispute it with the credit bureau in question, which you can learn to do here.)
5. Your Score(s) Will Improve Over Time
Most accurate negative information will take 7 years to age completely off of your credit reports. Some bankruptcies can take up to 10 (you can go here for specifics on how long things stay on your credit reports). But your scores won’t bear the brunt of the item’s presence for that entire time period — the further away you get from the original date of the item, the smaller its impact will be. As long as you course-correct, you won’t be saddled with a bad credit score forever.
In the short-term, you can potentially improve your scores by disputing errors on your credit reports, paying down high credit card balances and limiting inquiries while your numbers recover. You can maintain good credit in the long-term by making all payments on time, keeping debt levels below at least 30%, and ideally 10%, of your total available credit limit(s) and adding a mix of accounts (revolving debt, like credit cards versus installment loans, such as a mortgage) responsibly over time.
More on Credit Reports & Credit Scores:
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
- How Credit Impacts Your Day-to-Day Life