What Do Credit Report Ratings Mean?

Your three-digit credit score could separate you from other candidates when applying for a job and cost you thousands of dollars over your lifetime on loans and other services. Credit scores are a mathematical analysis of your riskiness as a borrower. If you take the time to understand what goes into a credit rating, you can use it to your advantage.

Identification

A rating from one of the three major credit rating companies---Equifax, Experian and TransUnion---quantifies how likely you are to default on a loan within the next two years, according to BankRate.com. The FICO model used by 90 percent of all lenders ranges from 300 to 850. The higher the score, the lower the chance of defaulting.

What is a Good Score?

Lenders can decide themselves what is a good score. In general, anything over a 720 is an excellent score and probably qualifies the borrower for the lowest rate. Good scores range from 690 to 720 and average ones from 650 to 690. Anything less and you may have a tougher time finding a lender or have to take on higher interest rates.

What is in a Credit Rating?

Anything that might tell a lender how you handle credit goes into the credit rating, such as how much of your available credit you need, how long you have used credit and the types of loans you hold. Monthly bills, such as cellphone, utilities and rent, do not go into a credit rating, because smaller companies usually cannot afford the monthly expenses required to report bills accurately to the rating agencies.

Considerations

The major bureaus do not share information, so scores can vary by company. Also, each demographic has its own scoring formula. People with a scant credit history, for instance, are only compared to other people in a similar situation, according to BankRate.com. Personal demographic information, such as race and age, do not go into calculating a score.

Tip

If a lender rejects you for credit, you can keep searching until you find a creditor that accepts your score. You should also actively try to improve your score. The bulk of your credit rating comes from paying your bills on time and keeping debt to a minimum. You should have at least one credit card to build history, but do not take out extra cards just to boost your score.