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Credit Scores

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Creditors use credit scoring systems to figure out if you’d be a good risk for credit cards, auto loans, and mortgages. Phone companies and companies selling auto insurance and home insurance also use credit scores along with other factors to decide whether to sell you a policy or service. Credit scores also can affect the terms of the credit you’re offered. Having a higher credit score means businesses see you as less of a financial risk, which means you’re more likely to get credit or pay less for it.

What’s a credit score?

A credit score is a number that represents a rating of how likely you are to repay a loan and make the payments on time. Lenders calculate your credit score using information in your credit report, like your history of repaying money you borrowed, the types of loans you’ve had, how long you have had a particular line of credit or loan, and how much total debt you owe. Credit scoring systems calculate your credit score in different ways, but the scoring system most lenders use is the FICO score. Many different kinds of businesses use your credit score to help decide whether to give you credit and what the terms will be. That includes what interest rate you’ll pay to borrow money.

How do I find out what my credit score is?

Unlike your free annual credit report, there’s no free annual credit score. A credit bureau might give you free credit scores. Other companies might give you a free credit score if you sign up for their paid credit monitoring service.This kind of service checks your credit report for you. It’s not always clear that you’ll be charged for the credit monitoring. If you see an offer for free credit scores, check closely to see if you’re being charged for credit monitoring.

Is it important to get my credit score?

Before you pay any money to get your credit score, ask yourself if you need to see it. Your credit score is based on what’s in your credit history: if you know your credit history is good, your credit score will be good. It might be interesting to know your score, but you can decide if you want to pay to get it. Usually, your credit score will fall between 300 and 850.

  • A high score means you have “good” credit, which means businesses think you’re less of a financial risk. You’re more likely to get credit: a loan, credit card, insurance — or to pay less for that credit.
  • A low score means you have “bad” credit, which means it will be harder for you to get credit. You’re more likely to pay higher interest rates on credit you do get.

Some insurance companies also use credit report information, along with other factors, to help predict your likelihood of filing an insurance claim and the amount of the claim. They may consider this information when they decide whether to give you insurance and the amount of the premium they charge. The credit scores insurance companies use are sometimes called “insurance scores” or “credit-based insurance scores.”

What’s the connection between my credit report and my credit score?

Creditors use your credit score to help decide whether to give you credit and what the terms will be, including what interest rate you’ll pay to borrow money. Your credit score is calculated using information in your credit report. Your credit report, which lists your payment history and information about the debts you owe, is a key part of many credit scoring systems. That’s why it’s so important to make sure your credit report is accurate. Federal law gives you the right to get a free copy of your credit report from each of the three national credit bureaus once every 12 months.

Through the pandemic, everyone in the U.S. can get a free credit report each week from all three national credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com.

To order your free annual credit report from one or all of the national credit bureaus

  • visit AnnualCreditReport.com
  • or call toll-free 877-322-8228
  • or complete the Annual Credit Report Request Form and mail it to:
    • Annual Credit Report Request Service
    • P. O. Box 105281
    • Atlanta, GA 30348-5281

Also, anyone in the U.S. can get 6 free credit reports per year through 2026 by visiting the Equifax website or by calling 1-866-349-5191. That’s in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get at AnnualCreditReport.com.

What if I’m denied credit or insurance, or don’t get the terms I want?

Under federal law, a creditor’s scoring system may not use certain characteristics — for example, race, sex, marital status, national origin, or religion — as factors when figuring out whether to give you credit. The law lets creditors use age, but any credit scoring system that includes age must give equal treatment to applicants who are older.

You have the right to:

Know whether your application was accepted or rejected within 30 days of filing a complete application.

Know why the creditor rejected your application. The creditor must

  • tell you the specific reason for the rejection (for example, “your income was too low” or “you haven’t been employed long enough”) or
  • that you are entitled to learn the reason if you ask within 60 days.

Learn the specific reason the lender offered you less favorable terms than you applied for, but only if you reject these terms. For example, if the lender offers you a smaller loan or a higher interest rate, and you don’t accept the offer, you have the right to know why those terms were offered. Read Credit Discrimination to learn more.

If a business denies your application for credit or insurance (or offers you less favorable terms) because of information in your credit report, federal law says the business has to

  • give you a notice that includes, among other things, the name, address, and phone number of the credit bureau that supplied the information.
  • include your credit score in the notice — if your credit score was a factor in the decision to deny you credit or to offer you terms less favorable than most other customers get.

If you get one of these notices:

  • You’re entitled to a free copy of your credit report from the credit bureau used to check your credit report.
  • Contact the creditor or insurance company to find out what in your report may have caused them to deny you credit or more favorable terms. The credit bureau can tell you what’s in your report, but only the creditor or insurance company can tell you what happened with your application.
  • If the creditor or insurance company says you were denied credit or insurance or more favorate rates because you’re too near your credit limits on your credit cards, you may want to reapply after you pay down your balances. Credit scores are based on credit report information, so a score often changes when the information in the credit report changes.

If a creditor or insurance company denies your application because of mistakes in your credit report, be sure to dispute the inaccurate information with the credit bureau and the business that supplied the inaccurate information. To learn more about this right, see Disputing Errors on Credit Reports. 

What can I do to improve my credit score?

When you get your credit score, you might get information on how you can improve it. Improving your score a lot is likely to take some time, but it can be done. Under most scoring systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt.

How does a credit scoring system work?

Credit scoring systems are complex, and vary among different businesses. Some systems may consider additional factors or may weigh factors differently. But most ways of calculating your score consider these types of information in your credit report:

  • Have you paid your bills on time? If your credit report shows that you’ve paid bills late, had an account put in collections, or declared bankruptcy, that’s likely to affect your score negatively.
  • Are you maxed out? Many scoring systems look at the amount of outstanding debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to hurt your score.
  • How long have you had credit? Generally, scoring systems consider your credit track record. A short credit history may hurt your score, but paying bills on time and having low balances can offset that.
  • Have you applied for new credit lately? Many scoring systems look at “inquiries” on your credit report to see whether you’ve applied for credit recently. If you’ve applied for too many new accounts recently, it could hurt your score. Not every inquiry is counted: for example, inquiries by creditors who are monitoring your account or making “prescreened” credit offers aren’t counted against you.
  • How many credit accounts do you have, and what kinds of accounts are they? Although it’s generally considered a plus to have established credit accounts, too many credit card accounts may hurt your score. Also, many scoring systems consider the type of credit accounts you have. For example, under some scoring systems loans to consolidate your debt — but not loans for buying a house or car — may hurt your credit score.

Credit scoring models compare this information to the credit behavior of people with similar profiles and assign you a score. These scoring models may use information outside of your credit report. When you’re applying for a mortgage loan, for example, factors include the amount of your down payment, your total debt, and your income, among other things.