What is a Credit Score?

Helping Your Credit Score

College presents a vital time to build a credit score. For many learners, student loans make attending college possible, and credit card companies offer exclusive deals for individuals in their 20s. So what is a credit score? And why is credit important?

Credit score is a number that communicates your reliability and odds of paying for services and borrowed money. A credit score differs from a credit report, which offers a detailed history of credit use. Information on a credit report determines a credit score. Lenders usually examine both credit reports and scores when determining loan eligibility.

Taking out student loans typically does not negatively impact a student’s credit score while enrolled in college. However, individuals should only take out loans they can afford to repay after graduation. Responsible credit card usage can also raise a score. In this guide, we discuss what goes into a credit score and what makes credit important.

Why Is It Important?

Lenders, credit card issuers, landlords, utility companies, and banks can access your credit score. Some states set laws that prevent utility and insurance companies from denying adults with low scores services, but these individuals may need to pay a higher deposit. 

A negative score can prevent a person from qualifying for auto, mortgage, or private student loans. It may also cause the borrower to pay a steeper interest rate. The same goes for acquiring good terms like low interest and a high credit line on credit cards. 

Some lenders may also require a cosigner for borrowers with low scores. Individuals asked to cosign may hesitate to do so since they assume responsibility for the loan if the borrower cannot make payments. 

Since a good credit score plays a vital role in financial health, read the following sections to learn how to build a good score.

What Is a Good Credit Score?



Lenders rely on credit reports by crediting agencies like TransUnion and Equifax to determine a potential borrower’s reliability. These two crediting agencies define good credit scores in similar ways. TransUnion ranks credit based on a 300-850 scale. This agency considers a score between 661-720 as good, and any higher as excellent. To break it down further, an A score falls between 787-850, 720-780 marks a B, and 658-719 ranks as a C. 

According to Equifax, scores between 580-669 qualify as fair, 670-739 rank as good, 740-799 list as very good, and the agency considers 800 and up as excellent. FICO is another credit-reporting bureau. For reference, the average FICO score in the United States was 711 in 2020.

What Goes Into a Credit Score?



So what is a credit score? In short, this number defines a person’s creditworthiness. Before understanding how to build and maintain a good credit score, you must learn the score’s components.


  • Payment History and Derogatory Marks

    Payment history and derogatory marks significantly impact a credit score. Setting up auto payments to maintain a 100% on-time payment history drives up a score. Lenders want to loan money to reliable borrowers who pay on time all the time. 

    A derogatory mark occurs when a lender declares bankruptcy or misses a payment. Derogatory marks stay on a credit score for 7-10 years, and in some cases, longer.


  • Credit Age

    This factor makes a medium impact on a credit score. Credit age does not just refer to how long you have been taking out loans or using credit cards. Instead, credit age deals with the average age of your open accounts. Individuals should consider keeping their accounts paid on time and open for many years. The longer you maintain a good payment record on a loan or credit card, the more reliable you appear to borrowers.


  • Credit Utilization

    Just like payment history and derogatory marks, credit utilization significantly raises or lowers a score by several points. This high-impact component refers to the ratio of your credit card balances to credit card limits. Keep balances low compared to your limits to maintain a good credit score. Better yet, aim not to carry a balance at all between statements.


  • Credit Inquiries

    When a lender or credit card issuer checks your score, it temporarily lowers by a few points. The industry refers to this action as a hard inquiry. This means individuals should avoid applying for unnecessary loans and credit cards. Hard inquiries qualify as low-impact factors and fall off a credit score in about two years.


Key Takeaways: Credit Scores at a Glance

  • What Is a Credit Score?

    A credit score communicates an individual’s creditworthiness and reliability. Loan officers, credit card issuers, landlords, and utility companies consider credit scores before reading through detailed credit reports.

  • Why Is It Important?

    Individuals should maintain a good credit score to obtain low interest rates and high credit limits. A good score provides financial freedom.

  • What Is a Good Credit Score?

    According to TransUnion, a score between 661-720 qualifies as good. Higher scores are excellent. Equifax considers scores between 670-739 as good, 740-799 as very good, and 800 and up as excellent.

  • What Goes Into a Credit Score?

    On-time payment history, credit card balance, and derogatory marks like bankruptcy significantly impact a credit score. Hard inquiries and average credit age make a lower impact on a score.

Establishing Credit: Advice and Ideas for College Students



College represents a great time to work on credit score. When it comes to maintaining a good credit score for college students, these actionable steps help.


  • Building Credit While in College This helpful resource outlines ways to build a credit score while in college. Learn how student loans and credit cards immediately start impacting scores.
  • How to Boost Approval Odds Approval odds refer to the likelihood that you qualify for a specific credit card. This article features some tips on how to increase these odds.

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