Calculated with a formula based on variables including payment history, credit length and amount owed, your credit score may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Read on to learn a few credit score basics, and what scores within a variety of ranges may mean for your borrowing future.

Credit Score Basics

Your credit score is a number that represents the risk a lender takes when you borrow money. A FICO score is a well-known credit score created by the Fair Isaac Corporation, and used by credit agencies to indicate a borrower's risk. Another credit score is the VantageScore, which was developed via a partnership between three credit unions, Equifax, Transunion, and Experian.

Your credit score calculation represents your credit risk at a moment in time, based on information found on your credit report. FICO scores range from 300 to 850, while Vantage scores range from 501 to 990. In both cases, the higher the credit score, the lower the risk to the lender. FICO scores are used for the purpose of this article.

Excellent Credit Score - 720 to 850

Borrowers with a credit score in the range of 720 to 850 are considered consistently responsible when it comes to managing their borrowing, and are prime candidates to get the lowest borrowing rates. They have a long history of no late payments, as well as low balances on credit products. Consumers with excellent credit scores may receive lower interest rates on mortgages, loans, and credit lines because they are deemed to be at low risk for defaulting on their credit agreements.

Good Credit Score - 690 to 720

A credit score between 690 to 720 indicates a consumer is generally financially responsible when it comes to money and credit management. Most of their payments, including loans, credit cards, utilities and rental payments are made on time. Credit card balances are relatively low compared to their credit account limits.

Problem Credit Score - 650 to 690

Borrowers with credit scores ranging from 650 to 690 have a damaged credit history. They commonly have a credit record showing multiple late payments to more than one lender, and may even show a loan default. Borrowers with problem credit scores are likely to be declined for future credit because they pose a high risk of not making payments on time and in full.

Poor Credit Score - 350 to 650

An individual with a score between 350 to 650 has a significantly damaged credit history. This may be the result of multiple defaults on different credit products from several different lenders. However, a poor score may also be the result of a bankruptcy, which will remain on your credit record for up to 10 years. Borrowers with credit scores that fall in this range have very little chance of getting new credit. If your score falls in this range, talk to a financial professional about steps to take to repair your credit.

No Credit - 0 to 349

Everyone has to start somewhere! If your credit score is between 0 to 349, chances are you haven't yet established a credit score and don't have a credit history. Talk to your local lender about their borrowing requirements. When you're approved for your first loan or credit card, set up a responsible repayment pattern immediately to establish a good credit record. If you do have a credit history, and your score has fallen to this range, drastic steps will likely be necessary.

The Bottom Line

Paying your bills on time and in full consistently will help you prevent damaging your credit score. Your credit score is based on a variety of factors and can be used to determine whether you will qualify to borrow money as well as the terms (including interest rate) of the credit. Scores between 720 and 850 are excellent, and indicate borrowers have long histories of using credit responsibly. Scores between 690 to 720 are good and show the borrower has made most of his payments on time and in full. A score between 650 to 690 may indicate a damaged credit history, possibly due to a loan default. Scores that fall in the 350 to 650 range suggest a significantly damaged credit history, often from more than one defaulted loan or even a bankruptcy.Scores under 349 are a sign that the applicant doesn't yet have a credit history.

Related Articles
  1. Budgeting

    7 Tips To Bounce Back From A Credit Score Disaster

    Find out how to repair bad credit in seven simple steps.
  2. Credit & Loans

    5 Keys To Unlocking A Better Credit Score

    Follow these tips and techniques to rebuild a ruined credit rating.
  3. Credit & Loans

    Top Places To Get A Free Credit Score Or Report

    When's the last time you checked your credit report? With all the hacking out there, don't wait for the car dealer to find problems when you need a loan.
  4. Credit & Loans

    Millennials: Prevent a Bad Credit Score

    Here are five ways to help prevent getting a bad credit score that could affect future loan, credit card or mortgage approvals.
  5. Credit & Loans

    Applying For Credit Cards Affects Your Credit Score

    if you follow these simple rules, you should be able to refresh your plastic without causing a big hit to your score.
  6. Credit & Loans

    Use Paying Rent to Boost Your Credit Score

    Now, rent payments can work for you – not just against you – to affect your credit rating
  7. Credit & Loans

    Unexpected Things That Lower Your Credit Score

    Learn how to avoid these lesser-known mistakes that could harm your credit score.
  8. Home & Auto

    3 Important Credit Score Factors

    These 3 factors have a huge impact on your credit score. Find out what they are.
  9. Credit & Loans

    The Road To The Worst Credit Score Ever

    We look at what you'd have to do to achieve the worst credit score possible. Use this as a guide for what not to do.
  10. Credit & Loans

    5 Keys To Unlocking A Better Credit Score

    A better credit score can open your opportunities for building a business, owning a home or just demonstrating you are responsible with your money.
  1. Does my debt-to-income (DTI) ratio affect my credit score?

    A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your gross income. Lenders ... Read Full Answer >>
  2. Will getting a student loan deferral hurt my credit score?

    A student loan deferral lets you postpone making payments on your student loan for a period of time. Your lender may approve ... Read Full Answer >>
  3. How does bouncing a check affect my credit score?

    A bounced check does not directly affect your credit score, but it could have an indirect effect on it. Banks do not report ... Read Full Answer >>
  4. How many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
  5. Is it possible to get a free credit report from Equifax?

    It is possible to get a free credit report from Equifax, as well as the other two major credit bureaus, Experian and TransUnion. ... Read Full Answer >>
  6. Do free credit reports affect your credit score?

    Free credit reports do not impact your credit score. Credit inquiries are divided into two categories: soft inquiries and ... Read Full Answer >>
Trading Center