What is a credit score and how is it calculated?

Your credit score affects many areas of your financial life, from getting approved for a credit card to the interest rate you’ll pay on your mortgage. It’s important to understand the number and how it is calculated so you can set yourself up for financial success.

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What is a credit score?

A credit score is a number that helps lenders assess how well you’ve managed your financial obligations.

745
VERY GOOD

What makes up your credit score?

Credit bureaus determine your score by analyzing information in your credit report. There’s no single formula, but here’s how FICO, a leading credit score provider, calculates your number.

1 Payment history
35%
Before lenders extend credit to you, they want to know if you pay your bills on time. Always make at least the minimum payment by the due date.

2 Amounts owed
30%
High balances can hurt your score, since lenders prefer when you only use a small portion of your available credit.

3 Length of credit history
15%
Your score considers how long you’ve been using your credit accounts. Generally, longer is better.

4 Types of credit
10%
Having a mix of loan types—such as credit cards, student loans and mortgages—is good for your score. It shows lenders you can handle multiple payments at the same time.

5 Credit inquiries
10%
Lenders see you as a bigger risk if you apply for, or open, several new credit accounts in a short period of time.

What do the numbers mean?

Scores typically range from 300 to 850 and can change monthly—for better or worse—based on your actions.

Poor
300–579

Fair
580–669

Good
670–739

Very good
740–799

Exceptional
800–850

700
The average American’s credit score

Source: FICO, 2017

Where can I get my credit score?

Each of the three major credit bureaus compiles a credit report for you and assigns you a credit score.

Equifax®
Experian™
TransUnion®

It’s smart to check the accuracy of your credit report regularly. The credit bureaus must provide you a free report every year via AnnualCreditReport.com, but you may have to pay to get your score. Some credit card issuers, such as Bank of America, allow you to see your credit score for free.

Now that you understand what goes into a credit score, you can learn how to improve it and avoid slip ups that could knock it down a notch. A high credit score can give you many financial advantages, so you’ll want to do everything you can to keep it up.

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The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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