Understand Your Credit Score

Learn about your credit scores

Your credit score is a big factor in determining your interest rate and if you qualify for a loan. To help you understand more about your credit score, our friends at Credit Karma helped us answer the below questions.

What is a credit score?

When you apply for a credit card, a loan, or even insurance, lenders check your credit score. This number is used to evaluate your creditworthiness. Your creditworthiness basically is an estimate of how likely you are to repay your financial commitments.

Why is it important?

Your credit score can impact everything from your ability to get a loan or a credit card, to rent an apartment, to get a mortgage or even auto insurance. Your credit score can also play a role in determining your interest rates. The commonly used FICO credit score ranges from 350 (very unlikely to repay) to 850 (very likely to repay). Often a 720 or higher is considered a strong FICO credit score, but different lenders have different standards.

I heard you can have multiple credit scores. Is this true?

Yes. You can have different credit scores depending on which credit reports and which scoring models are used. There are three major credit reporting agencies that provide credit reports: Experian, Equifax, and TransUnion. There are also different credit score models that are tailored to different industries and therefore produce different credit scores. For example, your auto lender will likely use a different score model than your credit card company.

What factors make up my credit score?

Your credit score is calculated using information from your credit report. Some key factors that are used in credit scoring models are explained below.

understand your credit scoreOn-Time Payment Percentage

This is the percentage of payments you’ve made on time during your credit history. It’s a factor that often weighs heavily into your creditworthiness, so just one or two late payments could significantly impact your score. If you’ve had trouble keeping up with payments, set up automatic bill pay or create calendar reminders for bill due dates.

understand your credit scoreCredit Card Utilization

This percentage is calculated by taking your total credit card balances and dividing that number by your total credit card limits. It essentially shows creditors how much of your available credit you use on average. A good rule of thumb is that lower credit card utilization rates are better.

understand your credit scoreAverage Age of Open Credit Lines

The longer your credit history and the older your accounts the better. That is why it can be a good idea to keep older credit cards open and active.

understand your credit scoreTotal Accounts

Consumers with more accounts (or more lines of credit) often have higher credit scores because it indicates that more lenders are willing to give them credit. Having a good mix of different types of credit is good for overall credit health as well. But remember it is a balance and you should only open accounts you actually need.

understand your credit scoreHard Inquiries

When you apply for credit like a credit card, mortgage or auto loan a hard credit inquiry is initiated on your credit report. One hard inquiry will usually have little impact, but multiple inquiries can have a larger impact. A soft inquiry is when you check your rate to see what you qualify for. As a reminder, when you check your rates through Lending Club, this is a soft inquiry and won’t impact your credit score.

understand your credit scoreDerogatory Marks

Derogatory marks are negative items on your credit report like collections, tax liens or bankruptcy. These records can stay on your credit report for 7 to 10 years. If you have one on your credit report, it can show a lender that you may have mismanaged your credit in the past.

If you want to understand how you stack up on these factors, check out Credit Karma’s free credit score overview.

Your Credit Health

Once you understand your credit score, it's important to protect your credit health. The first step to protecting your credit health is to understand where your credit stands. Here are 3 simple tips.
  • Remember to check your credit report every year to make sure it is accurate. You can update your TransUnion credit report once a week through Credit Karma. You can also visit AnnualCreditReport.com for a copy from all three bureaus.
  • Review your report to make sure there are no errors. You can use the Federal Trade Commission Guide to learn how to dispute any errors. You can also visit our Safety & Privacy page for additional helpful tips.
  • Monitor your credit report at Credit Karma. You’ll receive alerts if something changes on your credit report.