Underwriting & credit
Credit Score: Definition & Example
What Is a Credit Score?
A credit score is a three-digit number, usually from 300 to 850, that estimates how likely a person is to repay debt based on the information in their credit report.
What does credit score mean?
The most widely used scores are FICO and VantageScore. Both are calculated from credit bureau data. FICO weighs payment history (about 35%), amounts owed (30%), length of history (15%), new credit (10%), and credit mix (10%).
Each of the three major bureaus, Equifax, Experian, and TransUnion, may hold slightly different data, so a person can have different scores at each. Lenders may also use industry-specific versions, such as auto or mortgage scores.
Credit scores do not include income, bank balances, or rent payments unless those are reported to a bureau. That is why landlords often review income separately and why some renters have thin credit files despite a long history of paying rent.
Credit score example
An applicant has a FICO score of 712. Her report shows eight years of history, no late payments in five years, and credit card balances using 18% of her limits. A single 30-day late payment from six years ago still appears but has little effect on the score.
Related terms
- CreditworthinessCreditworthiness is a lender’s judgment of how likely a person or business is to repay borrowed money on time, based on credit history, income, debts, and assets.
- TradelineA tradeline is an individual credit account listed on a credit report, such as a credit card, auto loan, mortgage, or student loan, along with its balance, limit, and payment history.
- Soft Pull vs. Hard PullA soft pull is a credit check that does not affect your credit score, such as checking your own credit or a prequalification. A hard pull is a check made when you apply for credit and can lower your score slightly.
- Thin Credit FileA thin credit file is a credit report with too few accounts or too little history to generate a reliable credit score. People with no credit record at all are called credit invisible.
- Risk-Based PricingRisk-based pricing is setting a loan’s interest rate, fees, or terms based on the borrower’s estimated risk, so applicants with weaker credit pay more than those with stronger credit.
Credit score FAQ
- What is a good credit score?
- On the FICO scale, scores of 670 to 739 are generally considered good, 740 to 799 very good, and 800 and above exceptional.
- Does checking my own credit score lower it?
- No. Checking your own score is a soft inquiry and does not affect it.
