The average FICO® Score among Americans is 715 as of April 2025, which falls in the good range.
But if your number is below that, or you’re not entirely sure what a credit score truly means, this isn’t some random figure.
Here’s how it works in practice and what drives the number up or down.
What Is a Credit Score?
A credit score is a three-digit number that measures your creditworthiness as a borrower.
How Credit Scores Work
Your credit score is a factor in what lenders determine when you apply for a loan or credit card. The higher your score, the better your approval chances and access to top credit cards from banks, credit unions, and financial institutions, and lower rates on personal loans.
A low score typically translates to more rejections and higher prices if you are approved.
Who Calculates Credit Scores?
Your credit history is managed by the three credit bureaus in the U.S. Equifax, Experian, and TransUnion all record, update, and store information about your history of borrowing and repaying money.
These credit bureaus gather information when lenders report your activity to them. They retain this information in your credit file, which is used to calculate your score.
How Is Your Credit Score Calculated?
Here are the factors that affect credit score calculation:
- Payment history (35%): This monitors if you’ve been paying your bills on time.
- Amounts owed (30%): This component of your credit score examines your credit utilization ratio, which is the amount you use compared to your available lines of credit.
- Length of credit history (15%): The longer the history, the more information lenders have to review.
- Credit mix (10%): This considers the types of credit accounts that you have. A variety of installment loans, such as car payments and credit cards, demonstrate your ability to manage different financial obligations.
- New credit (10%): Lenders perceive opening large numbers of new accounts in a short time period as an indicator of financial stress.
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Why Are Credit Scores Different Across Bureaus?
All three credit bureaus maintain their own databases, and lenders do not report equally to all three. Some report data to only one or two bureaus, so what’s on each report can vary.
Timing also matters. If a lender reports to Equifax before TransUnion, your scores can vary for a time.
On top of that, lenders may apply different versions of the same scoring model. So, errors such as wrong balances, multiple accounts, or an unauthorized hard inquiry could show up on one report and not the others.
Why Your Credit Score Will Change Over Time
Your credit score fluctuates because your credit report is constantly changing. The score associated with that report will be updated when lenders add new information, so a score from last month may not match your score today.
This new information could be shifts in credit utilization, new credit inquiries, older accounts, and changes in account balances.
What Is a Good Credit Score?
A decent credit score also tends to sit within the range of scores that most lenders are comfortable lending on. These ranges enable lenders to evaluate risk when considering a loan or credit card application, but the actual cutoffs could be different depending on the scoring models.
In general:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
How Lenders Use Credit Scores
Lenders review your credit score to evaluate applications and set basic terms before approving different types of credit.
Mortgages
Lenders consult your credit score to determine whether to approve you for a mortgage and what interest rate they give you. Higher scores can generally mean lower rates, which can result in major interest savings over the life of a loan.
Auto Loans
When it comes to auto loans, the score serves as a way for lenders to gauge risk and price the loan.
Credit Cards
Credit card issuers use the score to approve applications and set credit limits. Higher scores can mean better interest rates and more access to credit, while lower scores can bring higher costs and stricter terms.
Personal Loans
For personal loans, lenders use the score to decide whether or not to approve you for a loan, and at what interest rate.
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What Will Bring Down Your Credit Score?
Certain habits and events can lower your credit score by affecting the information in your credit report.
Late Payments
Anytime you miss a due date, that goes directly on your credit score because payment history reflects your repayment behavior.
High Credit Card Utilization
Drawing too much on your available credit means a high credit utilization ratio, indicating that you’re a higher risk to lenders. High balances on credit card accounts may lower your score even if you are paying them on time.
Hard Inquiries
When you apply for new credit, hard inquiries show up on your credit report. Multiple inquiries in a short time can reduce approval odds since lenders might interpret that as more borrowing activity.
Identity Theft
Fake accounts/accounts you never opened, and bogus charges from identity theft can all wreck your credit file. If they are not caught, they can result in missed payments or unauthorized inflated balances.
How to Check Your Credit Score
There are a few ways you can view your credit score. Begin by looking at your credit or loan statements, which often include your score. You can also talk to a credit counselor for help.
Both free and paid credit score services are easy to access, and you can order your score directly from any of the three major credit bureaus: Equifax, Experian, or TransUnion.
How to Improve Your Credit Score
Your credit score won’t fix itself overnight, but these methods will help.
Pay Your Bills on Time
Your record of paying bills on time is the most important factor in determining your credit score. Lenders like to see that you can manage financial obligations responsibly. You’ll need to wait for six months of on-time payments before your score noticeably increases.
Reduce Your Debt
Maintain a credit utilization ratio under 30%. If your overall credit limit is $10,000, keep balances below $3,000. You can pay off debt faster to see an increase in your credit health.
Personal finance expert Suze Orman emphasized in an article from the July 2009 issue of O, The Oprah Magazine that:
“I have always advocated doing everything possible to pay off credit card balances; it’s good financial management and the ticket to a strong FICO credit score.”
Keep Old Accounts Open
Closing unused credit cards backfires. You lose the credit history associated with older accounts while decreasing available credit, which increases credit utilization. Stop using the card instead.
Dave Ramsey, founder and CEO of Ramsey Solutions, explained on The Ramsey Show that, “If you shut down every single account, you have no outstanding credit account of any kind, and they’re all closed and zero balance, about six months later, you will have no credit score.”
Limit New Credit Inquiries
Each time you apply for a loan or credit card, a hard inquiry is recorded on your credit report. Several inquiries are a sign of financial desperation and can harm your score.
Diversify Your Credit Mix
Credit scoring models consider the types of credit you manage. Combine credit card accounts with other loans to demonstrate your ability to manage various accounts. Remember to only open what you need.
Check Your Credit Reports Regularly
Obtain your credit report from each agency every year at AnnualCreditReport.com. Then correct anything you see that’s wrong.
Credit specialist Tyler Gregory put it simply: “If you don’t take good care of your credit, then your credit won’t take good care of you.”
How Can I Raise My Credit Score Quickly?
If you have been paying your bills on time but haven’t seen an increase in your credit score, services like Experian Boost may help. They include rent and utility payments on your credit file, something that credit bureaus don’t typically report.
FICO® Scores vs. VantageScore
|
Feature |
FICO Score |
VantageScore |
|
Origin |
Fair Isaac Corporation |
Collaboration of Equifax, Experian, and TransUnion |
|
Minimum History |
At least one account open for 6+ months |
At least one account open for 1+ month |
|
Hard Inquiry Window |
45-day span for similar loans |
14-day span for all credit types |
|
Inquiry Types |
Mortgage, auto, and student loans only |
All types, including credit card accounts |
|
Paid Collections |
Generally included in older models |
Ignored/not factored into the score |
|
Small Collections |
Ignores balances under $100 |
Includes all unpaid collections |
|
Primary Factor |
Payment history (35%) |
Payment history (Extremely influential) |
|
Secondary Factor |
Amounts owed (30%) |
Credit utilization (Highly influential) |
Frequently Asked Questions
Is it true that after 7 years your credit is clear?
Most negative marks, like late or missed payments and collections, drop off your credit report after seven years, but that timeline doesn’t erase the actual debt you owe. Bankruptcies stay on your report for up to 10 years, and lenders can still pursue unpaid balances even after items disappear from your credit file.
How rare is a 700 credit score?
A 700 credit score isn’t rare at all. It sits in the good credit range, where many borrowers fall. Most lenders see scores between 670 and 739 regularly, so you’re in common territory.
Does anyone have a 900 credit score?
A 900 credit score only happens with older industry-specific models like the FICO Bankcard Score, not the standard scoring models people usually see. When that model assigns a 900, it signals extremely reliable repayment behavior to lenders.
What is the 2 2 2 credit rule?
The 2-2-2 rule suggests maintaining two active credit accounts that are at least two years old, with two consecutive years of on-time payments, and credit limits of $2,000 or more per account. It’s a guideline for building a solid credit history.
Should I pay my credit card weekly or monthly?
Paying twice a month helps you monitor spending and stay ahead of account balances. If you’re carrying debt, biweekly payments can also reduce the interest rate charges you rack up over time.
The Bottom Line
Your credit score affects your financial health more than you realize. Once you understand how it functions, you can handle it in a strategic way that will save you money and access better financing options.
For more insights about credit management, subscribe to FInancial Daily Update today.
