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), that institution will usually look up your credit score to help determine how likely you are to repay them.

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

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

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

poor

Less than 580

fair

Between 580 and 669

good

Between 670 and 740

very good

Between 739 and 799

exceptional

800 or more

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

How Is a Credit Score Calculated?

There are a number of factors that 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. That means you’ll need to have some sort of credit account linked to your Social Security number before you can get any kind of score. 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 possibly 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. Luckily, new credit applications only 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?” Unfortunately, there isn’t a clear answer. The exact figure that makes a lender feel comfortable letting you borrow money will vary. That said, you can get a general sense of whether or not 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 704. If your score is around that, then you’re about average in the eyes of lenders. You should aim even higher because, as your score improves, you’ll have an increasingly better chance of getting a loan.

What Is Considered a Bad Credit Score?

Now the opposite question must be asked. Again, “what is a bad credit score?” will get different answers depending on who you’re talking to, but many lenders would consider anything below 570 “bad”.


Unfortunately, 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 even 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.

What Can a Great Credit Score Mean for Me?

A bad credit score can negatively impact your life, but a great credit score can make life much easier and cheaper. At the most basic level, knowing your credit score is healthy and can give you financial peace of mind.


It means that you’re on the right track — you’re building up the right kind of debt, paying it off responsibly, and maintaining good relationships with your creditors. This develops good habits that form a strong financial foundation you can benefit from throughout your life.

Why Do I Need a Good Credit Score?

Lenders will also take note of a great credit score. This gives borrowers two major perks. First, a borrower with a great credit score is more likely to qualify for most loans. Second, they’ll get much lower rates than borrowers with less than perfect credit. That means, not only do you have more access to credit with your great credit score, but your cost of borrowing also drastically decreases. That’s especially true for big loans, like a mortgage, that take years to pay off. Those differences in interest rates will really add up!

Luckily, if your credit isn’t great yet, it can be. You can apply for MoneyLion’s Credit Builder Plus program, which helps you improve your credit score while putting some money in your pocket. Most MoneyLion borrowers see a 60-point increase in their score in about 60 days.


Being aware of your credit and finances can help improve your score, too. Check to see what your credit limit is every month, make all your payments on-time, and check any interest rates before accepting new loans so you don’t end up with debt you can’t afford to pay off.

CREDIT BUILDER Highlight

MoneyLion Gave Me Some Credit!

– Jason D.

MoneyLion has a positive IMPACT ON MY CREDIT

“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.“

Jason D., Trust Pilot

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