Credit Score Basics: Mastering the Influential Three-Digit Number

Who knew a three-digit number could have such an impact? Your credit score affects whether you can buy everything from your first car to your dream home and even impacts whether you can rent an apartment or land certain jobs. For being so essential, it’s not widely understood. How’s it calculated? Why’s it moving up and down? That’s why we’re celebrating National Credit Education Month by sharing new resources all month long!
 

What Is a Credit Score?

Standardized in 1989, a credit score is a numerical representation of your creditworthiness. Clear as mud, right? Essentially, it’s a calculation of how likely you are to repay borrowed money on time based on your past actions. Scores range from 300 to 850. The higher the score, the lower the risk to lenders.
 

How Does Scoring Work?

If you’ve ever applied for a loan or reviewed your credit report, you may have noticed a slight variation in your score from one to the other. That’s because multiple scoring models and credit bureaus are involved. The two most widely used scoring models are FICO and VantageScore. While they use slightly different formulas, both pull data from your credit report, which is maintained by three credit bureaus: Equifax, Experian, and TransUnion. Because each may have slightly different information on file, your score can vary.
 

What Factors Compose a Credit Score?

Knowing the factors that are being measured to calculate your credit score is the first step to making improvements. (Psst! You can find your grade by factor for free using our Credit Monitoring tool.)

Payment History (40%) Unsurprisingly, the biggest factor affecting your score is on-time bill payments, giving future lenders an idea of how reliable you’ll be. Even one late or missed payment can have a negative impact.

Credit Usage (23%) Your credit also relies on how much of your available balances you're using. The rule of thumb is to use less than 30% of any credit limit. The lower the better!

Credit Age (21%) The longer your accounts have been open, the better. That’s why, even if you’re not using an old credit card, it’s good to keep it open.

Account Mix (11%) Lenders like to see that you can manage different types of debt, like credit cards, auto loans, and mortgages. As you’re able, work toward diversifying your mix.

Inquiries (5%) Every time you apply for a loan or credit card, the financial institution pulls a hard inquiry. Too many applications in a short period can signal financial distress. Try to avoid applying for multiple loans in quick succession.
 

What's a "Good" Score?

So, what should your goal be? Use these score ranges as a guide for where you want to go.

• 800 - 850: Exceptional. You'll qualify for the best available rates and terms.
• 740–799: Very Good. You'll receive competitive offers from most lenders.
• 670–739: Good. Most lenders will approve you, but not always at the best rates.
• 580–669: Fair. You may face higher interest rates or stricter requirements.
• 300–579: Poor. Approval is difficult, time to explore credit-building options.

What Can I Do Next?

All BHFCU members have access to Credit Monitoring in Online Banking or the Mobile App. Review your score, get tips on how to improve it, set goals, simulate how financial decisions could affect your score, and preview your credit report anytime. You’re also entitled to one free credit report directly from each of the three bureaus annually.

Still not sure where to start? We’ve partnered with the trusted nonprofit, GreenPath Financial Wellness. All BHFCU members have free access to certified financial counselors. Want to learn how to read your report? Curious to know more about how it’s calculated? Looking for ideas to help improve your score? Request a call with a GreenPath Financial Wellness counselor today to get started!