Credit Score
In this quarter’s online feature you’ll learn what makes up your credit score, how your credit score affects you, and what you’ll need to do as an adult to make sure you keep your credit score high.
What’s a credit score?
Your credit score is a three-digit number that shows how good your credit is, just like a grade in school shows how well you’re doing in that class. The higher score you have, the better. Sometimes you’ll hear your credit score called a FICO score. That’s because the mathematical formula that determines your credit score was developed by the Fair Isaac Company (FICO).
Your FICO score goes down when you do something bad to your credit, like missing a credit card payment. The actual formula is a secret of Fair Isaac, but the list below is approximately how your score is calculated:
35% = payment history
30% = outstanding debt
15% = length of your credit history
10% = recent inquiries on your credit report
10% = types of credit in use
Why is a credit score important?
Although your credit score probably doesn’t matter much to you right now, as you become an adult, your credit score is very important. Your credit score will help lenders decide what rate you will get on loans. The rate you get on a loan can mean a big difference in the total amount you’ll pay for a car or home, and how long it will take you to pay off the loan. Having a good credit score is very important.
What is a good credit score?
The average credit score for "excellent" credit is 720 or higher. A score lower than 675 means lenders may really look over your credit history to make sure it’s safe to give you a loan, and people with scores lower than 500 will often be denied for a loan. Below is a general table of how credit scores are ranked:
Credit Score Rankings
AA |
720-850 |
Excellent credit |
A |
700-719 |
Very good credit |
B |
675-699 |
Good credit |
C |
620-674 |
Acceptable credit |
D |
560-619 |
Poor credit |
E |
500-560 |
Very poor credit |
F |
Below 500 |
No credit |
How do I get a good credit score?
Once you are old enough and responsible enough to open up a credit card in your own name or get a loan for a car or college, there are things you can do to make sure you have a good credit score.
- Don’t buy what you can’t afford. Credit cards are great for convenience and to pay for things when you don’t have the money with you at the store, but make sure you have the money to pay off your credit card bill. Late or incomplete payments will lower your credit score.
- Check your credit report. As an adult, it’s a good idea to get a free credit report once a year. This way you can check to see if someone has stolen your account information and made purchases with your account, or if a lender made a mistake in reporting your information. You can get a free credit report each year by going to www.annualcreditreport.com.
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