What a credit score is and how it is calculated
A credit score is a numerical summary generated from information in a consumer credit report. It is not stored inside the report itself. Instead, a scoring model reads the report data and produces a number that represents risk at a moment in time.
Scoring models assign different weights to items in the report, such as payment history, amounts owed, length of credit history, new credit, and credit mix. The exact formulas are proprietary, so different models can produce different scores from the same underlying data.
Federal law, including the Fair Credit Reporting Act, governs how consumer reporting companies handle the data that feeds into scores. That law gives consumers rights to access reports and to dispute inaccurate information.
The main factors in scoring models
Most scoring models consider similar categories. Payment history is often the most heavily weighted factor because it reflects whether accounts have been paid on time.
Amounts owed, sometimes called credit utilization, compares balances to credit limits on revolving accounts. Length of credit history looks at the age of accounts. New credit reflects recent applications and newly opened accounts. Credit mix considers the variety of account types.
These categories are not weighted equally, and the weights vary by model and by the consumer's overall profile. A missed payment on one account may have a different effect than a high balance on another, depending on the rest of the report.
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Credit mix
What the score ranges mean
Credit scores generally fall within a range, such as 300 to 850 for many FICO scores and 300 to 850 for VantageScore. Some industry-specific scores use different ranges.
Higher numbers indicate lower risk as assessed by the model. Lenders set their own cutoffs, so a score that is acceptable for one lender may not be for another. There is no single universal passing score.
The range is divided into bands, but the labels and cutoffs vary by model and lender. A score is a snapshot at a point in time and can change as report information changes.
- Exceptional
- Very good
- Good
- Fair
- Poor
Scoring models lenders actually use
FICO and VantageScore are the two main scoring model developers. Lenders may use versions from either, and specific versions are often tailored to different credit products, such as auto lending or credit cards.
Mortgage lenders often use older FICO versions, while credit card issuers may use newer ones. A consumer may have many different scores because each model and each credit reporting company can produce a separate result.
The three national credit reporting companies—Equifax, Experian, and TransUnion—each hold separate files. A score based on one company's file may differ from a score based on another's because the underlying data can differ.
How consumers check their credit scores
Consumers can obtain scores through various sources. Some credit card issuers and financial institutions provide scores to their customers. Nonprofit credit counseling organizations may also provide access.
Federal law gives consumers the right to a free credit report from each national credit reporting company. Reports do not always include scores, but they show the data that scoring models use. Consumers can request reports through the official centralized source.
Checking a score is generally considered a soft inquiry and does not affect scores. Soft inquiries occur when a consumer checks their own score or when a lender checks for preapproval purposes.
Mistakes, errors, and score variation
Scores can vary because of differences in data, model version, and timing. A score from one day may differ from the next if report information changes.
Errors in credit reports can affect scores. Common errors include accounts that do not belong to the consumer, incorrect balances, and duplicate entries. Under the Fair Credit Reporting Act, consumers may dispute inaccurate or incomplete information with the credit reporting company and the furnisher.
The dispute process requires the credit reporting company to investigate, usually within a set time frame. If information is found to be inaccurate, it must be corrected or deleted. The law does not require removal of accurate information.
Frequently asked questions
What is a credit score?
A credit score is a number calculated from information in a credit report. It summarizes risk at a point in time. Different scoring models can produce different numbers from the same report.
Are credit scores all the same?
No. FICO and VantageScore are separate scoring models, and each has multiple versions. Scores also differ depending on which credit reporting company's file is used. Lenders choose which model and version to use.
Do checking scores hurt them?
Checking your own score is typically a soft inquiry. Soft inquiries do not affect scores. Only certain hard inquiries, such as those from a lender reviewing a new application, may be considered by scoring models.
What can cause scores to differ between companies?
The three national credit reporting companies maintain separate files. If a lender reports information to only one or two of them, the data will differ. Scoring model versions and the timing of the score calculation also cause differences.
Can errors in a credit report affect a score?
Yes. Inaccurate information such as a misreported late payment or an account that is not yours can affect a score. The Fair Credit Reporting Act gives consumers the right to dispute errors, and credit reporting companies must investigate.