It’s common knowledge that a person’s credit score can have a significant impact on their ability to get the best deals on loans and credit cards. And those opportunities can potentially save borrowers many thousands of dollars over a lifetime. But exactly what the credit rating scale involves is a mystery to many people. That’s a problem for potential applicants who’d like to build their score before shopping around for a loan.
Read on to gain insights into how credit scores are calculated, what the different credit ranges mean, and what you can do to qualify for the best interest rates.
The Three Major Credit Bureaus
Credit bureaus are independent agencies that collect and maintain consumer credit information and then resell it to businesses in the form of a credit report. The Fair Credit Reporting Act allows the government to oversee and regulate the industry.
There are three major credit bureaus that most lenders pull data from:
• Equifax®
• Experian®
• TransUnion®
Commonly used credit scoring systems are FICO® and VantageScore, each of which ranges from 300 to 850.
What Actually Factors into Your Credit Score?
Here’s a closer look at the popular FICO Score system, which uses a scoring model that sources data from credit bureaus to calculate your score. Elements used in the FICO scoring model (as of this writing, the latest version is FICO Score 10) include:
• Payment history: 35%
• Credit utilization: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%
Wondering what those terms mean? Here’s a closer look:
Payment History
Payment history looks at whether you pay your bills in a timely manner. Do you have a history of paying bills a couple weeks late, or are you the type who always pays your cable bill even before it is due? That’s the kind of thing that will come into play here.
Credit Utilization
“Amount owed” is pretty self-explanatory — it’s how much total debt you’re currently carrying. Your “credit utilization ratio” may not be quite so clear. That’s the amount of credit you actually use compared to the amount of credit available to you. Lenders generally like to see a credit utilization ratio of 30% or lower. Some even recommend no more than 10%.
Here’s an example: Say you owe $500 on each of two credit cards, and one has a credit limit of $1,000 and the other has a limit of $3,000. The amount you owe is $1,000 out of a credit limit of $4,000. So you are using 25% of your available credit. Your credit utilization is therefore 25%.
Length of Credit History
This factor looks at the age of your oldest and newest accounts and the average age of all your accounts. To lenders, longer is better.
Credit Mix
Credit mix considers the variety of your debt — is it primarily credit card debt? Do you carry student loan debt or have a mortgage? A desirable mix is a combination of revolving debt (lines of credit, credit cards) and installment debt (loans with fixed repayment terms like student loans and car loans).
New Credit
New credit looks at what accounts have recently been opened in your name, or if you’ve taken out any new debts. Trying to access a considerable amount of credit in a short period of time can have a negative impact on your credit score.
Recommended: Credit Card Utilization: Everything You Need To Know
How’s Your Credit?
Where your credit score falls on the scoring table determines how “good” your credit is. Here’s a breakdown of the credit rating scale according to FICO standards.
• Excellent or Exceptional: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579
Ready for a plot twist? Your credit score may not be consistent. Some reasons why:
• There are different scoring systems, and variations in how various lenders and creditors report information.
• Also, FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history. In effect, each consumer has multiple credit scores.
• You may also hear the phrase “educational credit score.” This can refer to the proprietary scoring models used by TransUnion and Equifax, not necessarily to be used by lenders, which can help educate consumers about their credit scores. Since they may or may not reflect the credit score that potential lenders use, it can be wise to make sure you know what kind of credit score you are viewing.
You are probably curious how your credit score stacks up to the national average. The average three-digit number in the U.S. is currently 714.
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Check your credit score with SoFi Relay.
Trying to Build Your Credit Score With Credit Card Debt
You’ll notice that a lot of information around improving your credit scores focuses on debt reduction. After all, 30% of your FICO Score is based upon outstanding debt. By paying that down on time, you may be able to build your credit score. For this reason, one potential action item for those trying to have a positive impact on their credit history is to work on paying down credit card debt.
Credit card debt may be the highest-interest debt you’re carrying. Compare these numbers:
• The average credit card interest rate on interest-accruing accounts with balances was 22.76% mid-2024, according to the Federal Reserve.
• A rate of 6.53% was established for federal undergraduate student loans for the 2024-2025 school year.
• The average mortgage rate was 6.37% in September 2024 for fixed-rate, 30-year conforming loans.
That means if you have credit card debt, it could be your fastest growing debt. By getting rid of it, you may be able to significantly reduce your outstanding debt. Here are a few techniques:
• One way to get out of credit card debt is to consolidate it into a lower-interest option. With a balance transfer credit card, you can move your high-interest debt to a 0% interest card. The catch is that the 0% interest is temporary, and after a given amount of time (typically 12 to 21 months), the interest rate shoots up.
• Another option is to take out a personal loan, which can consolidate multiple high-interest credit card debts into one monthly payment, often at a lower interest rate. For example, in September 2024, the average personal loan rate was 12.38% vs. almost 23% for credit cards, as noted above. Personal loans are typically unsecured loans with a fixed interest rate and terms of two to seven years. This could help you pay off your debt more quickly, which might help build your score.
• One other tip for potentially building your credit score: Thoroughly review your credit report for errors. Mistakes happen, and some of them can bring down your score. You can file a dispute online to correct or remove the information.
Recommended: Using a Personal Loan to Pay Off a Credit Card
The Takeaway
Credit scores, calculated based on information in your credit report, influence the interest rates you qualify for on loans and credit cards. The higher your score, the less you’ll likely pay in interest. The factors that determine your score include your history of on-time payments, your total debt compared to the amount of credit available to you, the types of debt you have managed, how much credit you have recently sought, and the age of your accounts.
One of the best ways to build your credit score is to pay down credit card debt. A common way to consolidate high-interest credit card debt is with a low-interest personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
What are the levels of credit ratings?
The levels of credit ratings are typically:
• Excellent (or Exceptional): 800-850
• Very good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579
How does the credit rating scale work?
Credit rating scales typically work by factoring in various indicators of an individual’s creditworthiness. For example, common components of your credit score will be your history of on-time payments, your credit utilization ratio, the length of your credit history, your credit mix, and how many new accounts you have applied for and how recently. These can indicate how well you have managed debt in the past and how likely you are to be responsible with credit in the future.
How rare is a 700 credit score?
The current average credit score in the U.S. is 714, so a score of 700 or higher is not that rare. To be more specific, recent reports indicate that 17% of Americans have a score between 700-749, 24% are between 750-799, and 23% are between 800-850. In addition, credit scores tend to be higher among older generations.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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