What Does Your Credit Score Mean? – Smarter Finance Journal

What Does Your Credit Score Mean?


credit-scoreWe all have credit scores, and we know that they’re important. We know that any time we want to get a loan, take out a new credit card, or make a sizable purchase, our credit score is scrutinized and can often be the primary determinant in financial decisions.

But what does this credit score number really mean? What goes into it? And what are some realistic things we can do to get move a poor score in the right direction?

How Is Your Credit Score Determined?

A credit score is a three-digit number calculated by a mathematical algorithm using information pulled from your credit report. Anyone who has ever opened a credit account of any kind has a credit report, which is maintained by one of three bureaus (TransUnion, Equifax and Experian).

The idea of a credit score is to project risk based on past activity. There are different versions of the equation used to calculate this score, but the most common (used by 90 percent of companies and institutions) is a FICO score. This number can range from 300 to 850 and the algorithm includes these factors:

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)

The weight of these categories can vary based on the individual, but these five categories are always the ones that will be looked at.

What Is A Good Credit Score?

That’s not exactly a simple question, because there is tons of variance on a case-by-case basis, but a general rule, a score of 700 or above is considered good. Anything about 750 is excellent. The graphic below provides a good look at the range of scores and how they can usually be described:


The majority of scores fall in the 600-700 range. If you’re below 700, you won’t necessarily be denied credit but you will pay more for it. So getting above 700 should be everyone’s goal.

The Keys To A Healthy Credit Score

There are a number of things you can do to maintain a healthy credit score, or a raise a sub par one. Keep a close eye on your credit card balances and pay them off as frequently as possible. Try to keep your expenses to a limited number of payment sources (i.e., make multiple purchases on the same card instead of across different cards when possible). Stay on a schedule with your payments and stick to that schedule as closely as possible.

In doing this, you’ll set yourself up for much greater creditworthiness in the future!

What Do You Think?



Leave a Reply

Your email address will not be published. Required fields are marked *

Like Smarter Finance Journal on Facebook
Get it in your News Feed before everyone else.