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What Is A Credit Score (And Why It Matters)

Matt Cardwell5-Minute Read
UPDATED: July 26, 2023


If you’ve ever applied for a credit card, shopped for a mortgage or tried to get an auto loan, you’ve probably wondered how a lender evaluates you to decide if they would like to extend you credit. The answer is that they have pulled your credit report and looked at your credit score: a three-digit number that serves as a “report card” of sorts of your financial health, the higher the better.

Lenders use this number as a gauge for whether you have paid back your debts responsibly in the past, assuming that you’ll use similar behavior going forward. They want to make sure you are a good risk … and the higher your credit score, the more likely they’ll be to not only approve you for the loan, but also to give you a lower interest rate and better terms.

Let’s take a look at where your credit score comes from, and how to improve yours.

What Is A FICO® Credit Score?

Your FICO® Score is the one that most lenders use; in fact, according to FICO®, more than 90 percent of the top lenders use this score to make their credit decisions.

But there isn’t just one FICO® Score. Since the FICO® Score was created in 1989, there have been 10 major versions, with the most recent one, FICO 10, announced in January 2020 and set to roll out in summer 2020. Lenders can use any version of the score they choose, each with small nuances.

For example, FICO Score 9 (what we use) was designed to include rental history and to ensure that unpaid medical collections have less of a negative effect than in previous versions, while the newest version, FICO 10, puts more weight on debt, including your credit card balances. For example, if you take out a personal loan to consolidate your credit card bills, it will take into account whether you immediately start running up those accounts again. In addition, it will consider the past 24 months of your payment history, and not just looking at the most recent month.

Even though a new version of FICO® has been announced, lenders are often slower to adapt the new versions; for example, FICO 8 remains the most widely used score. But the fact that the new version puts more weight on how you handle debt is a good sign that consumers should take steps to use debt responsibly so it doesn’t adversely impact their score going forward.

Furthermore, while there are 10 different versions of the main FICO® Score, the nuances don’t stop there. There are also subsets of FICO® Scores, like FICO® Bankcard Score, which a credit card lender is likely to use, and FICO® Auto Score, most often used to make decisions on automotive loans. These special scores put more weight on the factors that they are intended to measure; such as, the FICO® Auto Score will take into account your past auto loan habits as a weightier factor.

FICO® Vs. Credit Score – What You Need To Know

If you thought that having many types of FICO® Scores makes it confusing, we’re just getting started. Because while some version of your FICO® Score is the most used, it doesn’t mean it’s the only game in town.

Another competitor, called VantageScore®, launched in 2006 by the three credit bureaus – Equifax®, Experian™ and TransUnion® – to compete with FICO®. It also has several versions of its score, with VantageScore® 4.0 as the most recent.

And some lenders might have their own proprietary models as well. While you won’t necessarily know exactly what a lender is looking for each time, there are some general guidelines that apply.

Full credit score breakdown infographic from Rocket Loans.

What Makes Up A Credit Score?

The good news is that even with all these different credit scores, the basic building blocks to make credit decisions are similar, no matter what scoring model your lender is using. So even though there are nuances and every creditor might be judging you a little differently, below you’ll find the general breakdown that FICO® offers, along with some tips on how to improve your credit for each one:

Payment History (35%)

This is the top factor, so it shows that timely payments are crucial for getting future credit. That means it’s imperative to make sure you pay all your bills on time, every time.

Credit Utilization (30%)

This refers to how much credit you have (as in how many loans or credit cards) and how much of it you’re using. Credit experts recommend that you keep your balances below 30 percent of your available credit; that means if you have a card that has a $1,000 limit, you won’t want to carry more than a $300 balance.

Length Of Credit History (15%)

This metric measures how long you have had credit, dating back to that first card. Since longevity is a factor, you typically won’t want to close older card accounts, even if you obtain a newer one with better terms or perks. Consider putting one automated payment, such as your utility bill, on an older card so you can keep it active, yet still reap the better benefits of your preferred card. And if your credit score isn’t up to par, it could be because you have a limited credit history. While you don’t want to get credit you can’t pay off, see if it would be wise to open another account if you could use a boost.

Credit Mix (10%)

This looks at the different types of credit accounts you have – for example, a credit card and mortgage, combined with an auto loan or student loans. Again, you don’t want to apply for loans you don’t need, but this can be reassuring that it’s not a bad thing if you already have several types of loans; just make sure you’re paying them all on time.

New Credit (10%)

This measures how many times someone has checked your credit, known as “hard pulls.” For example, if you’re shopping for an auto loan and a mortgage at the same time, that can ding your credit score because of the inquiries. Lenders don’t know how much credit you might end up obtaining, and whether that can set you up for a spending spree that you won’t pay back responsibly.

Wondering what your credit score is? It’s smart to keep an eye on your credit report regularly so that you can check for any changes, including information that might have been reported incorrectly. Many credit card issuers and banks offer this service for free or you can check out, where the three nationwide credit bureaus offer you a free peek at your score each year.

Credit Score Scale – How Do You Stack Up?

So how high should that three-digit number rate to get the best benefits? FICO® has shared its scale to give you a window into what is considered a top score when you check your credit. In general, you’ll want to rank in the “very good” or “exceptional” range, while some lenders might still grant you credit with the “good” designation.

  • Exceptional: 800+

  • Very Good: 740 – 799

  • Good: 670 – 739

  • Fair: 580 – 669

  • Poor: 579 And Below

As noted above, improving your credit card habits, such as always paying your bills on time, can help you boost your score if you’d like to attain a higher number before applying for a mortgage or other loan.

A good credit score can help you qualify for financing, such as personal loans. If you’re ready to learn more about your personal loan options, apply for a personal loan today.

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Matt Cardwell

Matt Cardwell is Editor-in-Chief and leads the Rocket Publishing House at Rocket Mortgage. During his nearly 15 years with Rocket Mortgage, Matt has occupied a diverse array of Marketing leadership roles, including leading and growing the company’s early digital and internet marketing efforts; Vice President of Marketing; Director of Social Media and Director of Business Channel Strategy.