credit score 101

What Is a Credit Score?

Welcome to Credit Score 101! Here we’ll explain the basics of what a credit score is and link to additional credit lessons to help you learn even more about credit when you’re ready.

A credit score is a three-digit number that aims to quantify your creditworthiness. When you apply for any type of credit, like a credit card or loan, the institution will usually look up your credit score to help determine how likely you are to repay it.

Credit scores are based on information collected by three major credit bureaus: Equifax, Experian, and TransUnion. The credit bureaus collect information like what kind of credit you have and how often you pay off your debts on time.

what is a credit score

How do I know if my score is good or bad?

Generally speaking, you can categorize your FICO score into one of these groups:

score poor

Less than 580

score fair

Between 580 and 669

score good

Between 670 and 740

score very good
very good

Between 739 and 799


800 or more

In addition to credit bureaus, there are also different scoring models. The numbers above reflect the most common credit scoring model: the FICO score. It’s calculated by the Fair Isaac Co., also known as the Isaac Corp., and plays a role in over 90% of lending decisions in the U.S.

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How Is a Credit Score Calculated?

Several factors can impact a credit score. In general, they all concern what type of debt you take on and how you handle that debt once you’ve acquired it. Here’s a quick breakdown of what goes into it:

  • Payment history: 35%
  • Credit utilization: 30%
  • Length of credit history: 15%
  • Mix of credit: 10%
  • New credit: 10%

The most important factor — making up roughly 35% of your score, according to FICO — is your payment history. That’s why it’s so important to make at least your minimum payments on loans and credit cards every month. 

After that, your current outstanding debt makes up 30% of your score. This is measured in terms of credit utilization or how much debt you take on as a percentage of the total debt you could build. If your credit card has a $1,000 limit, for example, and you only have a balance of $100 at the end of the month, your credit utilization on that credit card is 10%. A good rule of thumb is to keep your credit utilization below 30%.

Those two factors make up nearly two-thirds of a credit score, so the remaining factors carry much less weight. The length of credit history makes up roughly 15% of your score — the longer you keep credit cards active without spiraling into soul-crushing debt, the better your credit score.

Creditors also want to see that you have experience managing different kinds of debt, not just credit cards, so that’s why credit mix makes up 10% of your score. Student loans, personal loans, and mortgages can help you mix up your credit types. 

Finally, anytime you apply for new credit, that triggers a hard check on your credit history, which negatively impacts your score. New credit applications roughly make up 10% of your score.

What Is a Good Credit Score?

Now that we know what a credit score is, the natural question to ask is, “What is a good credit score?” There isn’t a clear answer. The exact figure that makes a lender feel comfortable letting you borrow money varies. That said, you can get a general sense of whether you stand a chance of getting approved.

Credit scores don’t go neatly from zero up to the highest score; they range from 300 to 850. So what is a good credit score on this odd scale? Anything above 670 could be considered a good score. 

The average score in the U.S. is about 716. If your score is around that, you’re about average in the eyes of lenders. You should aim even higher because, as your score improves, you’ll have a better chance of getting a loan.

What Is Considered a Bad Credit Score?

Now the opposite question must be asked. “What is a bad credit score?” will get different answers depending on who you’re talking to, but many lenders would consider anything below 580 bad.

A bad credit score doesn’t just mean that you won’t be able to get a credit card with cool perks. A bad credit score can negatively impact many aspects of your daily life. 

A landlord could get nervous about renting an apartment to you if you have a bad credit score. Potential employers could perform a credit check during the application process, and if they don’t like what they see, it could ruin your chances of getting the job.

Why Do I Need a Good Credit Score?

A great credit score can open up a world of opportunities for you. It can help you qualify for lower interest rates on loans and credit cards, making borrowing more affordable. With solid credit, you’ll also see higher acceptance rates for all kinds of loans and financing products. 

Additionally, a high credit score may increase your chances of getting approved for rental properties. This can be incredibly important, especially if you live in a competitive housing market. Some insurance companies may also offer lower premiums to individuals with good credit scores.

Overall, maintaining an excellent credit score can help save you significant amounts of money on financing products and even provide you with more financial flexibility.

How to Improve Your Credit Score

One of the most basic yet effective ways to improve your credit score is by paying your bills on time. Late payments can weigh heavily on your credit score. You’ll want to set up automatic payments or create reminders to make it easier to stay on top of due dates.

Another tip is to avoid closing credit card accounts, especially the ones you’ve had for a long time. Length of credit history plays a role in determining your creditworthiness, and closing an account can shorten this history. 

Monitoring your credit is also important. Regularly checking your credit reports from the major credit bureaus can help you identify any errors or discrepancies that might be dragging down your score.

Luckily, if your credit isn’t great yet, it can consider exploring credit-builder loans. These loans are specifically designed to give people an opportunity to build or rebuild their credit. With a credit-builder loan, the funds you receive are fully or partially locked in a locked savings account, which is then released to you once the loan is paid off. 

With a credit builder loan, you’ll have the opportunity to develop a positive payment history and demonstrate responsible credit management. Sign up for a MoneyLion WOW membership* to access a host of resources and tools including a Credit Builder Loan to help you boost your credit and financial health!

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“MoneyLion has had such a positive impact on my credit score and has helped in numerous situations when I needed a little extra cash to get me through till my next payday. I have taken advantage of the Instacash program as well as the Credit Builder Loan program. I have been with MoneyLion for over a year now, and I have to say of all the cash advance apps out there, it is my #1 go to app. I highly recommend it to anyone looking to build their credit or just looking for a little cash to get you through a tough time.“

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Jason D., Trust Pilot