If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

### Course: Financial Literacy>Unit 3

Lesson 1: Credit score

# What is a credit score?

Learn about credit scores, why they are important, and the effects they can have on your finances.
A credit score is a number that helps lenders, like banks and credit card companies, decide whether to lend you money. It's important because the higher your credit score, the easier it will be for you to get approved for loans and credit cards.
Your credit score is calculated using a few different pieces of information. A credit bureau, like Experian, Equifax, or TransUnion, gathers this information and puts it all together. They look at things like:
• How long you've had credit accounts, like credit cards or student loans
• How much money you owe
• Whether you make your payments on time
• If you've ever filed for bankruptcy
The credit bureau will give you a score between $300$ and $850$. Each score, then, represents a
. The higher your score, the better the rating. Here's what the different ranges of scores mean:
• $300\text{--}579$: Poor
It will be hard to get approved for loans or credit cards, and you may have to pay higher interest rates.
• $580\text{--}669$: Fair.
You might get approved for some loans and credit cards, but you may not get the best interest rates.
• $670\text{--}739$: Good.
You should be able to get approved for most loans and credit cards, and you should get good interest rates.
• $740\text{--}799$: Very good.
You'll have an even easier time getting approved for loans and credit cards, and you'll get some of the best interest rates.
• $800\text{--}850$: Excellent.
You'll have no problem getting approved for loans and credit cards, and you'll get the best interest rates available.

## Why is credit score so important?

Credit score is primarily important when applying for loans or credit cards. It not only determines if you qualify for a loan, but it also determines the interest (how much) you will be paying for the loan.
Take a look at the scenario below. Jake and Luis are both looking at buying this car. They are both offered the same price and term ($60$ months) and the dealership is using their credit scores to determine the financing.
LuisJake
Credit score$789$$560$
Interest rate$2.29\mathrm{%}$$9.49\mathrm{%}$
Monthly payment$\mathrm{}282.46$$\mathrm{}335.93$
Total payment$\mathrm{}16,947.66$$\mathrm{}20,155.84$
Total interest$\mathrm{}948.66$$\mathrm{}4,156.84$
Because of Luis' high credit score, his interest rate was lower than Jake's, which resulted in lower monthly and total payments. In the end, Luis paid $\mathrm{}3,200$ less for the identical car.
In addition to being used by lenders to decide whether to give you a loan or credit card, your credit score can also be used in other ways:
• Landlords may check your credit score to decide whether to rent an apartment to you.
• Employers may check your credit score as part of a background check.
• Utility companies may check your credit score to decide whether to require a deposit from you when you sign up for service.
In summary, your credit score can have a big impact on many aspects of your life. It affects your ability to borrow money, the interest rates you'll be charged, and even where you can live and work. That's why it's so important to make sure you have a good credit score and work to improve it if needed.

## How do I find out what my credit score is?

There are a few different ways you can go about finding out your credit score:
• Many credit card companies will provide your credit score to you for free as part of your account benefits. Check your account online or contact your credit card company to see if they offer this service.
• You can use one of the many free credit score websites, or apps like Credit Karma to check your score. Be aware that some of these sites will require you to sign up for an account and may offer additional services for a fee.
• You can purchase your credit score directly from one of the three major credit bureaus (Experian, Equifax, or TransUnion). Each bureau has its own methods for calculating your score, so your score may differ slightly between each bureau.
• Finally, you can request a free copy of your credit report from each of the three credit bureaus once per year. While this report won't contain your credit score, it will contain all the information that is used to calculate your score. You can use this information to get a rough idea of where your credit stands.

## Want to join the conversation?

• Does checking your credit score affect ur credit score?
• It shouldn't. Be aware, though, that you only get a certain number of free checks every month or quarter. After that, you start to get charged for them.
• How do I keep my score consistently 850?. I know for a fact that having a score above 700 is already really good from reaading other questions and answers. However, I am a Muslim (A follower of the religion of Islam) and in my religion we should not pay any kind of interest because it is considered bad and it is a sin to do that.
• Look into Islamic banking, which helps people manage resources in ways consistent with Islam. Whatever an Islamic bank offers by way of a substitute for credit cards will serve you well and keep you Halal.
• the fastest way to grow my credit without a credit card.
• You could take a personal loan from the bank and pay it back on time and in full. You could have some work done on your house and, on a credit basis with the contractor, pay off the bill over a period of months. Both of these would grow your credit, but neither would likely give you a credit score.
• Hi! I'm 16 and I am going to start paying for my own gas soon. Are there any ways that I can start building my credit score now?
• You build up your credit score by doing the things that imply that you are trustworthy. If you have a job, you stick with it. If you have a credit card, you make your payments on time. Stuff like that.
• Look all you like. Be aware, though, that after the first few looks, they start to cost money. Stay within the limit of "free reports per month" or "per quarter".
• (rhetorical question) David Alexander, how are you this awesome?
• my question is how do people maintain their credits from starting off small and making their way up to a better one?
• Im pretty sure if they just pay their loans, mortgages , cars and the such, on time and they do that consistently it will raise their credit.