The simplest way to understand your credit score is to think back to your school days.
This week's article is a guest post from our friends at TrueCredit. Enjoy!
Think back to a time when your performance was measured in letter grades. Basically, having a great credit score is equivalent to being an A student.
Or, for people at the other end of the spectrum, having a low credit score is much like being a C or D student. If you just think about your credit score in terms of the letter grade system, the comparisons are easy.
And, the reality is that your parents or teachers were somewhat right — your grades can determine your future, like the fact that high school grades were a large factor in where you could go to college. Well, just like that, your credit score influences the types of loans you can get, as well as the types of interest rates you'll pay.
But it's important to understand that your credit score (unlike your grades) does not necessarily "go down in your permanent record." Nope, the credit scoring system is much more forgiving! Your credit score is always changing, and you definitely have control over how it will be in the future.
You can't go back and retake Calculus junior year, can you? But let's say your credit score is not exactly perfect — a few late payments on cards, or loans — it doesn't mean lenders will blacklist you for life. If you get your financial house in order, which is often as simple as starting to make regular on-time payments on your credit cards and loans, then over time your score may rebound. While your school transcript will always show that C+ in AP History, your credit score only shows your current creditworthiness. It lets lenders evaluate how much of a risk you are, as well the type of interest rates you'll get, whether for credit cards, a car loan, a personal loan or mortgage.
The system is cyclical: lenders report your payment history to the credit rating agencies (the three major agencies are Equifax, Experian, and TransUnion), and they act as a kind of hub, a place where your payment performance is centralized and can be accessed by lenders. This "hub" helps creditors make decisions much faster. Today, with our online capabilities, lenders can approve or deny applications almost instantly. In addition, your credit score is free of biases. It isn't influenced by factors such as race, religion, marital status, or gender. And it's a great system in that your credit score doesn't scar. It isn't permanent. It changes with you and your habits over a lifetime. You know how sometimes you look back at school and think "if only I knew then what I know now?" Well, with your credit score, you can always learn to do it better!
FAQs
Think of a credit score as a letter grade on your credit report: Just like getting an A is an easy way to tell if you did well on your math test, having a credit score of 780 is a fast way for lenders to see that you have a history of using credit responsibly.
Is your credit score like your GPA? ›
Just like your GPA, your credit score is a cumulative number that represents what you have done, only it exists in the world of credit instead of academics.
What is the difference between a credit score and a credit grade? ›
Credit ratings are expressed as letter grades and used for businesses and governments. Credit scores are three-digit numbers used for individuals and some small businesses. Your credit score is based on information from the three major credit reporting agencies: Experian, TransUnion, and Equifax.
How is credit score graded? ›
FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
Are credit scores similar to grades on a report card? ›
The relationship between the pair is much like a report card is to a grade point average. Both tell how well you're doing in school. But one measures your performance with one number, while the other captures it with grades for each class. Think of your credit report and credit score the same way.
Is a 900 credit score possible? ›
Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.
Do F's count towards GPA? ›
In addition, while P does not affect your GPA, an F earned from a Pass/Fall class (P/F) is treated like an F earned normally, and will count toward your GPA.
How much does 1 credit affect GPA? ›
It depends on how many quality points they earn for each grade. If the D is in a 1-credit-hour course, the student will earn a 3.76 GPA. If the A is in a 1-credit-hour course, they will earn a 3.3 GPA. Same grades, same total number of credit hours, but different weights based on the credit hours of the course.
How is a credit score more forgiving than your grades? ›
A low credit score will mean paying a much higher interest rate. This, of course, will make the cost of the loan higher overall. A high GPA might open the door to academic opportunities, but a high credit score will keep more cash in your wallet. This is much more important once you've left school behind.
How to get a 900 credit score? ›
8 ways to achieve a perfect credit score
- Maintain a consistent payment history. ...
- Monitor your credit score regularly. ...
- Keep old accounts open and use them sporadically. ...
- Report your on-time rent and utility payments. ...
- Increase your credit limit when possible. ...
- Avoid maxing out your credit cards. ...
- Balance your credit utilization.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
Is B+ a good credit rating? ›
B1/B+ are ratings below investment grade but still one of the highest ratings in the non-investment grade bracket. Moody's Corporation uses B1, while S&P Global Ratings and Fitch Ratings use B+.
What is a good credit score by age? ›
How Credit Scores Breakdown by Generation
| Average FICO 8 Score by Generation |
|---|
| Generation | 2022 | 2023 |
|---|
| Generation Z (ages 18-26) | 679 - Good | 680 - Good |
| Millennials (27-42) | 687 - Good | 690 - Good |
| Generation X (43-58) | 707 - Good | 709 - Good |
2 more rowsA perfect credit score of 850 is hard to get, but an excellent credit score is more achievable. If you want to get the best credit cards, mortgages and competitive loan rates — which can save you money over time — excellent credit can help you qualify. "Excellent" is the highest tier of credit scores you can have.
What grade is a 600 credit score? ›
Having a 600 credit score places you below the national average and into the "fair credit" category. Subprime is the categorization lenders use to designate the likelihood that a borrower will default on or pay back their loan.
How are credit reports and scores related? ›
A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Your credit scores are calculated based on the information in your credit report.
Are grades weighted by credits? ›
Grade Point Average (GPA) is calculated by determining the total point value of your letter grade and dividing by the number of credits attempted. Failing grades do not earn points, but the attempted credits are included in GPA calculations.
What is a B+ credit score? ›
B1/B+ are one of several non-investment grade credit ratings (also known as "junk") that may be assigned to a company, fixed-income security, or floating-rate loan (FRN). These ratings signify that the issuer is relatively risky, with a higher-than-average chance of default.
