What Does my Credit Score Mean?
If your entire financial life could be summed up in one number, it would be your credit score. But that number can be a moving target; you might check it one day and find that it's one number, but then see a different number the next time you look. Or it might vary based on which source you acquire your credit score from.
Credit scores are fluid because there are dozens of different models.1 That's why your credit scores can vary, depending on the scoring model and credit bureau. Even your FICO score, the one that's used by 90% of top lenders,2 has numerous versions.3 And in 2020, FICO released a new model, the FICO 10 Suite, creating the potential for an additional credit score number.
If all these options have you feeling confused, don't worry. Below you'll find the main things you need to know to understand your credit score.
FICO 10 models more strongly penalize people who use a high percentage of their available credit — while rewarding those who manage debt responsibly.
What Is a Credit Score?
While the terms “credit report" and “credit score" are often used interchangeably, they are actually quite different.
- Think of your credit report as a report card — it's a summary of all your financial information and behavior. For example, when you pay your bills on time, that information is reflected in your credit report. When you miss a payment or an account goes to collections, you'll see that in your report too.
- Your credit score, on the other hand, is like your final grade. It's a three-digit number that reflects how responsible you are when it comes to borrowing money, based on all the information in your credit report. Creditors consider this number when deciding whether or not to approve you for a credit card, loan, and more. The higher your credit score, the better.
Understanding Your FICO Score
FICO scores, the most commonly used credit scores, range from 300 to 850 and are based on the information that the three major credit bureaus — Experian, Equifax, and TransUnion — have on file for you. Since your scores might vary between bureaus,4 it's a good idea to keep tabs on all three (more on that below).
Another reason your FICO Score can vary is that the model that is used to calculate it can vary. That's because the company that creates the FICO model updates the criteria periodically to keep up with changing consumer behavior. For example, since consumers use credit more frequently than they did when the first FICO Score was introduced in 1989, newer versions of the FICO score model weigh credit utilization more heavily than they used to. There are even special scores that are typically used for auto lending (FICO Auto Score) and credit card lending (FICO Bankcard Score).
There are currently 10 primary models of FICO scores (not including the subset of auto and credit card scores), and individual lenders can choose which one to use. And they're not always quick to adapt — while the previous version, FICO 9, was released in 2014, FICO 8, introduced in 2009,5 remains the most widely used model.
Although the new FICO 10 Suite is now available to lenders, there's no indication of when — or even if — lenders will adopt it. “We don't know how many lenders will be using it," says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC).6 “Lenders have the final say in which version they will use, and many have their own proprietary scoring system as well."
Credit Score Factors
Though the exact algorithm used to calculate your credit score is proprietary, there are five major factors that influence your FICO score7 regardless of which model is used:
- Payment history (35%): The most important factor in determining your credit score is your payment history. Missing just one payment can negatively affect your score, while always paying your bills on time will boost your score higher.
- Amount owed (30%): Lenders like to see that you aren't too reliant on credit. Maxing out your credit cards is a big red flag. In fact, experts recommend utilizing no more than 30%8 of your total available credit.
- Length of credit history (15%): A short credit history or no credit history at all can hurt your score because your behavior is less predictable. The longer you've been using credit, the better.
- New credit (10%): Opening a lot of accounts within a short period of time can be a red flag that you're unable to keep up with your bills. It's a good idea to pace yourself when opening new credit cards or taking out loans.
- Credit mix (10%): Finally, lenders like to see that you can handle a variety of credit types. A mix of credit cards and different types of loans on your credit report will help strengthen your score — as long as you are paying them back responsibly.
While different FICO models will weigh the elements within each of these five factors a little differently, there has been no indication that this overall breakdown will change, McClary says.
How FICO 10 Is Different
So how do FICO 10 and FICO 10T differ from the other FICO models? First, the FICO 10 models more strongly penalize consumers who are utilizing a high percentage of their available credit. This is especially true for borrowers who consolidate all of their credit card debt into an unsecured personal loan — and then start acquiring new credit card debt. The flip side of this is that the FICO 10 models will more strongly reward those who are managing debt responsibly.
While FICO expects9 that most borrowers will see a minimal change to their credit score with this new model, there are certain groups for whom changes are expected. First, experts predict that about 40 million people who currently have good scores could see their scores increase by about 20 points, while another 40 million with lower scores (below 600) could experience a 20 point drop in their score with the new model.
Another difference: While previous credit score models only looked at the most recent month of activity, the “T" in FICO 10T stands for “trending," which means it will take into account your credit-related behavior over the past 24 months.
Credit Score Ranges The good news is that even though there are numerous models, your credit score is unlikely to vary wildly. So you may be wondering what's considered good credit? And when should you worry? Experian breaks down the FICO score ranges:
- Exceptional = 800+
- Very Good = 740 to 799
- Acceptable = 670 to 739
- Fair = 580 to 669
- Poor = 579 and lower
People with “very good" and “exceptional" credit scores will be able to borrow money at the lowest interest rates. Those with “fair" and “poor" scores will have to pay more to borrow money — if they're approved at all.
How to Check Your Credit Report and Credit Score
Not sure how you stack up? It's important to regularly check your credit report and credit score so you don't have issues when you need to borrow money.
You can check your credit report from all three of the major credit bureaus for free at annualcreditreport.com.10 Although you used to be entitled to only one free credit report per bureau per year, access was expanded due to the increased risk of fraud during COVID-19. As of December 2021, you could still get free weekly credit reports from each of the bureaus.
Review your credit reports for any errors that could negatively affect your score. If you do find an error, you can dispute it online through that credit bureau's website or give them a call:
- Equifax – 1-800-685-1111
- Experian – 1-888-397-3742
- TransUnion – 1-800-888-4213
Credit reports don't include your credit score, unfortunately. However, most credit card companies offer free FICO scores to their customers. There are also sites that provide free credit scores, though they do not offer FICO scores. Still, they can give you an idea of where you stand.
If you need help understanding your credit score, or to learn more about how to improve your credit, stop by a Synovus branch and talk with us.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Bill Fay, “What is a Credit Score and How is it Calculated? " Debt.org, updated November 30, 2020, accessed November 30, 2021. Back
- myFICO, “How Lenders Use FICO Scores in Credit Checks," accessed November 30, 2021. Back
- myFICO, “FICO Score Versions: Did You Know You Have More Than One FICO Score?" Accessed November 30, 2021. Back
- myFICO, “Why are my FICO® Scores different for the 3 credit bureaus?" Accessed November 30, 2021. Back
- Samantha Silberstein, “FICO 08," Investopedia, updated August 26, 2021, accessed November 30, 2021. Back
- NFCC.org, accessed November 30, 2021. Back
- myFICO, “What's in my FICO Scores?" Accessed November 30, 2021. Back
- Latoya Irby, “What Is the Credit Utilization Ratio?" The Balance, updated November 29, 2021, access November 30, 2021. Back
- Tara Siegel Bernard, “Your Credit Score May Soon Change. Here's Why." The New York Times, published January 25, 2020, accessed November 30, 2021. Back
- AnnualCreditReport.com, accessed November 30, 2021. Back
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