Where Credit Is Due

By Simone Slykhous

December 7, 2018 4 min read

As a kid in elementary school, almost nothing was scarier than the possibility of getting a bad mark on your permanent record. No one wants to be labeled a "problem." And though your missteps in Ms. Mixon's second-grade classroom may be long erased, another record is much more permanent: your credit score.

If you've ever applied for an apartment, switched cellphone providers or gotten new job, then you've probably been asked about your credit score. And if those three digits aren't high enough, you can be in trouble, and not just with your vice principal.

So how should you decipher your score? Credit scores are created by two agencies, FICO and VantageScore 3.0, and range from 300 to 850. A bad score is anything under 600. A poor score is between 600 and 649. A fair score is between 650 and 699. A good score is between 700 and 749. And an excellent score is anything over 750. Though it is up to each lender to determine what scores it considers "good."

If your score is above 700, then you're doing rather well. According to data from FICO in April 2018, "the average FICO score was 704. Less than 20 percent of scores fell below 600; 22.6 percent were between 600 and 699, and 58.2 percent were 700 or above."

A high credit score will give you more credence with credit lenders, as your score is an indication of how likely you are to pay your bills. If you have a poor score, then a lender might charge you a higher interest rate or refuse to serve you at all. As summarized by myFICO.com, a division of FICO that allows customers to purchase their FICO scores directly from the company, "When a consumer applies for credit -- whether for a credit card, an auto loan, or a mortgage -- lenders want to know what risk they'd take by loaning money."

For those who are reading this and realizing that they have no idea what their credit score might be, there is hope. According to the U.S. government, "You are entitled to a free credit report from each of the three credit reporting agencies (Equifax, Experian and TransUnion) once every 12 months. You can request all three reports at once, or space them out throughout the year."

To get a score, you must have at least one account that's been open for longer than six months. The algorithm used to create your credit score is the proprietary information of FICO and thus kept under wraps. However, most credit score ranges are based on five categories. Your payment history is usually weighed as 35 percent of your score, with your utilization of credit (the percentage of available credit being used) accounting for another 30 percent. The length of your credit history is around 15 percent, while the mix of accounts you hold and the number of inquires into your credit are both about 10 percent.

If your scores aren't A+ material, you can take a few steps to improve them. First, carefully go over your credit reports. If there are any errors or unexplained late payments, clear them up with your card companies. Otherwise, derogatory marks can stay on your credit history for seven to 10 years. Paying off your balance -- or as much of your balance as possible -- each month is another great start. And you can bump up your score by becoming an authorized user on a trusted person's card with a long credit history.

Building and rebuilding your credit score takes time, and a solid score is important for fulfilling on those important milestones of adulthood -- like leasing a new car or buying your first home. So start where you're at, and muster up some patience and diligence to carry on toward a 700-plus future.

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