What Is a Credit Score and How Is It Calculated?

You have probably heard the term credit score, but what is it really, and why does it matter so much? In simple terms, your credit score is a three-digit number that tells lenders how likely you are to repay what you borrow. Nova UA Federal Credit Union wants to help you understand it, because understanding it puts you in control.

What is a credit score?

A credit score usually ranges from 300 to 850. The higher your score, the more confident lenders are that you will pay them back, and the better the rates and terms you tend to receive. Two companies produce the scores most lenders use, FICO and VantageScore, and both use the same 300 to 850 range.

Where does the information come from?

Your score is based on your credit reports, which are maintained by three main credit bureaus: Equifax, Experian, and TransUnion. Because each bureau may hold slightly different information, your score can vary a little depending on which report is used.

The five factors that shape your score

Payment history (about 35 percent): whether you pay your bills on time. This is by far the most important factor.

Amounts owed (about 30 percent): how much of your available credit you are using. Lower is better.

Length of credit history (about 15 percent): how long you have had credit. Older accounts help.

New credit (about 10 percent): how often you apply for new credit. Many applications in a short time can lower your score.

Credit mix (about 10 percent): the variety of credit you manage, such as a card and a loan.

What is a good credit score?

Ranges vary slightly by model, but a common guide is: Excellent 800 and above, Very good 740 to 799, Good 670 to 739, Fair 580 to 669, and Needs work below 580. Reaching the good range or higher opens up better rates on loans, a credit card, and a mortgage.

Why your score matters

Your credit score affects the interest rate you pay, the size of a deposit a landlord or utility company may ask for, and even some insurance rates. A strong score can save you a great deal of money over time.

You are in control of your score

Your credit score is not a mystery. It reflects a few clear habits, above all paying on time and keeping balances low. If you are just starting out, a secured credit card from Nova UA is a simple way to begin.

Have questions about your credit score? Talk to a specialist or become a member of Nova UA today.

Nova UA Federal Credit Union. Federally insured by NCUA.

Frequently Asked Questions

What is a good credit score?

Scores range from 300 to 850. A score of 670 or higher is generally considered good, 740 and up is very good, and 800 or more is excellent.

What affects my credit score the most?

Payment history and the amount you owe carry the most weight, together making up about 65 percent of your score. Length of credit history, new credit, and credit mix make up the rest.

How often does my credit score change?

Your score can update whenever a lender reports new activity, often monthly. Paying on time and lowering balances are the fastest ways to see it improve.