What Is a Credit Score

A credit score is a number generated by a statistical model that reads the information in a consumer's credit report and expresses it as a single figure. The model is built by a scoring company, and lenders, landlords, insurers, and other businesses choose which model they want to use. The score is not stored inside the credit file the way an account balance is. Instead, a scoring system calculates it when a business requests one. FICO and VantageScore are the two scoring brands most commonly used in the United States, and each publishes multiple model versions. The most familiar range runs from 300 to 850, but not every model uses that scale, so two numbers with the same digits may not mean the same thing.

Scoring models weigh different pieces of the credit report, but the broad categories are similar. Payment history, meaning whether accounts were paid on time, generally carries the most weight. Amounts owed, including how much of an available revolving limit is in use, is usually next. The length of the credit history, the number of recently opened accounts and recent inquiries, and the mix of installment loans, revolving accounts, and mortgage debt make up much of the remainder. A scoring model does not read most of the identifying information that appears in a report, such as name, address, or date of birth, and traditional models do not use income or employment. A credit score is therefore a summary of how credit has been handled, not a measure of net worth or earnings.

There is no single credit score. Each of the three national credit reporting companies maintains its own file on a consumer, and creditors do not necessarily report to all three, so the underlying data can differ. Scoring models also differ in version, in the time window they examine, and in how they treat events such as a collection account or a bankruptcy. As a result, a score pulled from one source can differ from a score pulled from another on the same day. Some scores shown or given to consumers are educational scores designed for consumer display rather than the exact score a specific lender uses. Free credit reports from each of the three nationwide credit reporting companies are available through AnnualCreditReport.com.

Businesses use credit scores in several contexts. A lender may review one during a credit card, auto loan, or mortgage application; a landlord may review one before renting; and insurers in some states use a separate credit-based insurance score when setting premiums. A score is one input among many, and an applicant's income, existing debts, and the lender's own standards also matter. Under the Fair Credit Reporting Act, a consumer has the right to see what is in their credit file, to dispute information that is incomplete or inaccurate, and to receive an adverse action notice explaining the reason when a lender denies an application or offers less favorable terms because of information in a report. That notice also includes a right to a free copy of the report that was used.