What is a credit score?

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In a Nutshell

A credit score is a three-digit number that represents your history with credit. Your credit scores help predict the likelihood you’ll repay debt, so lenders may check these to determine your creditworthiness. Higher credit scores can typically help you qualify for credit and get better terms. You may have multiple credit scores at once, and they can change over time.

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A credit score is a snapshot of your creditworthiness at a particular moment — and it can also communicate a lot about your credit history.

These three-digit numbers are a measure of how well you’ve managed credit, like a mortgage or credit cards, in the past. And they help predict how likely you are to pay back a line of credit in the future.

Credit scores are calculated using the information in your credit reports. A couple of the factors that go into calculating your credit scores are the total amount of debt you have and your payment history. Higher credit scores can typically help you qualify for a loan or credit card with better credit terms.

Because credit scores are influenced by things like the credit-scoring model and when the score is calculated, you have many different credit scores that may not match exactly.


Why a good credit score is important

A credit score can play a key role in your financial life. When you apply for credit such as a credit card, personal loan or mortgage, lenders want to know whether you’re likely to repay that loan according to the agreed terms. When evaluating that risk, lenders may order your credit reports and credit scores. This is called a hard credit inquiry, and it can temporarily lower your credit scores by a few points.

Having higher credit scores generally means you’ve established a history of using credit responsibly. But it’s not the only thing lenders consider when you apply for credit. If you choose to apply for a credit card or loan, the lender may also check things that aren’t reflected in your credit scores, like your income and available assets.

So your credit is just one of the factors that determines whether you qualify for a loan and what the terms will be. Loan terms like interest rate and down payment can affect how much you pay overall.

What influences a credit score?

While your credit scores may vary, they’re all based on the information in your credit reports and can help predict how likely you are to repay a loan on time.

Your credit scores are typically based on a few factors, including the following:

But there are many ways to calculate a credit score, so it’s not uncommon to have many different scores at the same time. Let’s take a look at a few factors that influence your credit scores.

Credit-scoring models

Credit-scoring models are formulas used to calculate your credit scores using the information in your credit reports. Each scoring model uses a different method to calculate your score, which is why your scores may not match each other — even if they’re based on the same information.

VantageScore and FICO are two well-known credit-scoring models. The VantageScore® 3.0 score and most versions of the FICO® score are measured using a range from 300 to 850, with 850 being the highest score possible. There are also industry-specific credit scores that a lender might use if you’re trying to get a specific kind of financial product, like a car loan. For FICO, these special scores can range from 250 to 900.

The credit bureaus may also calculate a credit score for you based on their own models.

The credit bureau

A credit bureau gathers information about your financial history and shares it with lenders and others in the form of a credit report. Most consumers are familiar with the three major credit bureaus: Equifax, Experian and TransUnion.

Each credit bureau may have different information on file about you. For example, your credit card issuer might report to only one or two bureaus (or none at all), or it may send updates to the bureaus at different times. That means your credit scores may calculate different information and therefore won’t match.

The info in your credit reports

For some people, there isn’t enough information in their credit reports to generate a score at all. That’s because each credit-scoring model may have different minimum requirements for calculating a score. For example, FICO says consumers should have at least one credit account that’s been open for at least six months and at least one account that’s been reported to the credit bureau within the last six months.

Timing is everything

There’s no hard-and-fast rule for when your credit scores are calculated. Your scores will depend on when the lender reports new account information to the credit bureaus, when the bureaus update your credit reports and when the credit score is actually calculated. So if you pay off your credit card, it may take a few days or weeks before you see a difference in your scores.


What’s next?

There are several ways to check your FICO credit scores. With a free Credit Karma account, you can also check your VantageScore 3.0 scores and reports from TransUnion and Equifax anytime. Additionally, you’re guaranteed by law to receive at least one free credit report once a year from each credit bureau if you request it at AnnualCreditReport.com.

The Consumer Financial Protection Bureau recommends checking your credit reports …

  • At least once a year
  • When you suspect identity theft
  • Before applying for credit or certain jobs

Checking your credit reports regularly can help you see what’s affecting your credit scores and understand how to improve your credit over time.