The Credit Score Scale (300-850) Explained

One of the most common questions we hear from new members at Addition Financial is “What does my credit score mean?” It’s a good question to ask. Sometimes, people who have never had a credit card don’t know how the credit score scale works, what it means and how it can impact them now and in the future.

We think every consumer should understand the credit scoring system. Here’s some information that can help you get a handle on your score.

What is a Credit Score?

Let’s start by talking about what a credit score (also known as a FICO score) is. Simply stated, it’s a numerical value between 300 and 850 that represents your creditworthiness.

Any time you apply for credit, whether it’s a credit card, a car loan or a mortgage, the potential creditor pulls your credit report. The report consists of a score as well as details of your accounts and payment history. It also includes information about public filings, such as tax liens and judgments.

Most lenders have a benchmark in mind. While the details of your report matter, the score is what they’ll look at to decide whether they want to lend to you.

What Do the Numbers Mean?

As we stated above, your credit score is somewhere on a scale between 300 and 850. Technically, someone with no credit history would have a score lower than 300. However, most people fall in the range we specified.

Even if you know your FICO score, you might not know what the numbers mean. Here’s a breakdown:

• A score between 0 and 349 means you have no credit or very little credit history
• A score from 350 to 649 indicates a troubled history with multiple serious delinquencies
• A score from 650 to 699 indicates a slightly troubled history with some delinquencies
• A score from 700 to 749 is considered good
• A score from 750 to 850 is considered excellent

Many lenders assign special status to consumers with scores over 750. A score that high indicates an excellent credit risk.

How is Your Credit Score Calculated?

Your credit score is calculated using five elements that help creditors determine how safe it is to lend to you. Here they are, in descending order of importance:

• 35% of your score is determined by your payment history. If you pay on time, your score will be higher than it would if you have had multiple late payments and other payment issues.
• 30% of your score is determined by your credit balance. This includes both your overall balance, as well as your outstanding balance as a percentage of your credit limit. If you’re using most of the credit available to you, your score is likely to be lower than it would be if you used only a small percentage.
• 15% of your score is determined by the age of your credit. If you have a long-time credit card account, your score will be higher than if you have only had a card for a short time. Consistency matters, so keeping accounts in the long term is beneficial to your score.
• 10% of your score is determined by the kinds of credit you have. Most creditors prefer to see a mix of revolving credit (credit cards) and installment credit (mortgages and car loans).
• 10% of your score is determined by the number of inquiries on your account. Any time you apply for a new card or loan, the lender pulls a report and your score takes a slight hit. Applying for many new accounts at once can have a significant impact on your score.

Being mindful of these factors can help you improve your score over time.

How Does Your Credit Score Affect You?

Your credit score can have a big impact on multiple areas of your life. For example:

• New potential creditors will check your score and make lending decisions based on what they find.
• Your score plays a part in determining the interest rates you can qualify for.
• Your FICO score can impact your ability to find employment, since many employers – particularly those who are seeking people to handle their money – check credit scores as a condition of employment.
• Landlords also check credit history and can deny you a lease if your score is too low.

The higher your score is, the easier it will be for you to buy a new car, qualify for a mortgage or find a job in certain industries.

The takeaway here is that the credit score scale is a direct reflection of your payment history and financial habits. It helps lenders decide whether they can trust you with their money.

To learn about how Addition Financial membership can help you build your credit, please click here.