5 Things You Need to Know About Credit Scores

By Pinyo Bhulipongsanon on 18 October 2010 5 comments
Photo: Ruud Hein

Over the past few years, consumers have been increasingly aware of the importance of a credit score. If you plan to borrow money (i.e., car loan or mortgage), your credit score is a major factor that determines your ability to get the loan and the interest rate you are eligible for. With a better credit score, you will be able to enjoy the best rates available. Your credit score could even impact your insurance rates and your ability to get certain jobs. As such, it is a good idea to learn as much as you can about this important number. (See also: How to Improve Your Credit Score)

1. Your credit score is a number

Your credit score is a number reported by various credit bureaus. There are three major bureaus that you should be know: Experian, TransUnion, and Equifax. These credit reporting agencies use different algorithm to determine your score, and they also have slightly different credit score ranges. In general, your score ranges from 300 to 850, and anything above 700 is considered good.

2. You can get your credit score for free

There are many websites that can provide you with free credit scores and reports. But some are better than others, and if you are not careful, you could end up paying a lot more than you bargained for. To be on the safe side, here are two sites that provide you with absolutely free information. These sites are:

  • Quizzle.com gives you free access to your Experian credit score and report.
  • CreditKarma.com gives you free access to your TransUnion credit score and provide a proprietary credit report.

As an aside, if you want to see your credit reports from the three agencies for free, you can check out AnnualCreditReport.com. It is the only government-recommended website for obtaining your credit reports. Through this website, you can get one free credit report from each bureau per year. And here's a tip: You can stagger your reports four months apart and have up-to-date access to your credit reports year-round.

3. Good number, bad loan?

Occasionally, you will be surprised by a bad loan offer despite your good credit score. This is not that uncommon, especially with the recent credit crisis. If this happens to you, ask your lender to explain why your interest rate is unexpectedly high and ask to see your credit information. There may be a mistake on the report, your lender may be looking at a different score, or your lender may not have your best interest in mind. You can ask your lender to check with other bureaus and negotiate, or you can go to a different lender.

4. Your credit score can be improved

If your credit score is below where you want it to be, there are many things you can do to improve your credit score. Some of these methods include:

  • Do not borrow what you cannot afford to pay back. Borrowing more than you can afford puts you in bad financial strain, and one misstep could cause you to miss your payment, resulting in a lower credit score.
  • Pay all your bills on time. A good payment history shows that you are responsible with your finances, and will help improve your credit score.
  • Do not close your old credit card accounts as long as you are not paying any fees. A longer credit history is good for your credit score.

5. Your credit score can be lowered

On the other hand, there are things that will hurt your credit score. There are many little things that can ding your credit score, but the major ones are declaring bankruptcy, letting your debt go into collection, and having a tax lien against you. Whatever you do, avoid these three like the plague.

Obviously, there are a lot more to know about managing your credit, which goes hand in hand with managing your finances. However, this article should serve as a good starting point. If you have any questions, or simply want to add your own thoughts, please leave your comment below.

For more information about good credit scores, please see What is a good credit score? to get your score and see how you stack up.

This is a guest post by Pinyo Bhulipongsanon. Pinyo is the owner of Moolanomy Personal Finance Blog, a website dedicated to help you improve your finances and money management skills. Moolanomy also features reviews of popular financial products and a community-based questions and answers section.

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Guest's picture


How about the fact that in most cases, opening new lines of credit, rather than closing old lines of credit is what will improve your score.

I was a little dumdfounded when I learned that one....

Guest's picture
Credit Man

No offense, but you need to do more research on this topic before offering advice. Some information is incorrect, and other parts are correct, but incomplete.

1. There are many types of scores at each bureau, but when people refer to "your score" or "the score", they are referring to your FICO score. You said this algorithm is different at each bureau. That is incorrect. The algorithm for the FICO score is the same. The reason the score can be different at different bureaus is because each one may have different information about you. Lenders don't necessarily report your activities to all of the bureaus. Sometimes they only report to one or two.

3. This is true, but again, it's not just about "the score". Lenders use A LOT of factors in determining whether they will offer you that loan or decide your credit limit. They may look at your payment history to see how many times you were late on certain payments (even types of payments). They may look at your debt to income ratio. They may look at how many loans/credit lines you already have. You'd be surprised just how much information they have about your spending habits and your debts and the payment on those debts.

In short, it's not all about "THE" score. Be smart. Make your payments on time and don't carry high balances. It's all about being a "good customer". The less of a risk it is to offer you that loan, the lower your interest rate will be.

There are other mistakes, but I'm tired of typing :)

Guest's picture

We've been scouring the web for absolutely free credit scores. So far, only Quizzle and Credit Karma provide them for free. These are Experian and TransUnion scores, respectively, and not FICO scores.

Guest's picture
Charles Jolly

Basic explanation, but very well written. Article could have gone deeper into how numbers used in free credit scores can vary quite a bit. They are not "all" FICO scores!!

Guest's picture

All 3 of my credit scores are excellent, but why is it that 1 them is roughly 100 points lower than the third? Is it possible one of the reporting agencies made a mistake?