What is a Credit Score?

A credit score is a three-digit number between 300 and 850 that shows lenders how likely you are to pay your bills on time.

When you apply for a loan or credit card, companies look at this number to decide whether to approve you and what interest rate to offer.

Credit score ranges

Different scoring models exist, but most follow similar patterns:

• 300-579: Poor

• 580-669: Fair

• 670-739: Good

• 740-799: Very good

• 800-850: Excellent

There's no magic number that guarantees approval. Higher scores simply show you've handled credit responsibly in the past, making lenders more confident about working with you.

Why do I have different credit scores?

You actually have many credit scores, not just one. These scores vary because:

• Different agencies (Equifax, TransUnion, and Experian) may have different information about you

• Not all lenders report to all three agencies

• Different industries use specialized scoring formulas (car loans vs. mortgages, for example)

How are credit scores calculated?

Most credit scores consider these factors:

• Payment history (the most important factor)

• Credit utilization (how much of your available credit you're using)

• Types of credit accounts you have

• Length of your credit history

• Number of recent credit applications

Lenders prefer to see a credit utilization rate below 30%. It's also good to have both revolving credit (like credit cards) and installment loans (like mortgages).

When you apply for new credit, it creates a "hard inquiry" on your report. Too many of these in a short time can lower your score. But checking your own score doesn't hurt it.

Why credit scores matter

Better credit scores typically mean better loan terms. This can save you thousands of dollars in interest over time. For example, someone with excellent credit might pay much less for a mortgage than someone with fair credit.

Keep in mind that lenders also consider other factors like your income when making decisions. Different industries might weigh certain factors more heavily depending on what matters most for their type of lending.

Building your financial foundation

Your credit score isn't set in stone—it's something you can improve over time. By making payments on time, keeping your credit card balances low, and being selective about new credit applications, you can gradually build a stronger score.

Understanding how credit scores work is the first step toward financial health. Whether you're planning to buy a home, finance a car, or simply want more financial options, a good credit score opens doors and saves you money in the long run.