Your credit score is one of the most important numbers influencing your financial future. It affects your ability to qualify for a mortgage, rent an apartment, get approved for a credit card, or even land certain jobs.
This comprehensive guide explains what a credit score is, how it works, what impacts it, and how to improve or protect it over time.
Whether you’re building credit from scratch or recovering from financial setbacks, you’ll find practical guidance and legal insights to help you make informed decisions.
What Is a Credit Score?
A credit score is a number that reflects a person’s creditworthiness. It’s calculated from credit report data provided by credit bureaus. Lenders use this score to assess how likely someone is to repay borrowed money.
The score typically ranges from 300 to 850, with higher scores indicating better credit health. It’s based on several factors like payment history, debt levels, credit age, and types of credit used.
Why Do Credit Scores Exist?
Credit scores help lenders judge the risk of lending. By summarizing a person’s credit history into a single number, it makes it easier to decide on loan approvals, credit limits, and interest rates. This system supports trust in lending decisions.
Without credit scores, lenders would have to manually review credit reports, which can be time-consuming and inconsistent. Scores provide a standard way to compare borrowers and make faster, fairer lending decisions.
How Does a Credit Scoring System Work?
A credit scoring system uses a mathematical model to assign points based on your credit behavior. Here’s how the system typically functions:
Data Collection
Lenders, credit card companies, and other financial institutions send your account data to the three major credit bureaus (Experian, TransUnion, and Equifax). This includes account balances, credit limits, payment history, and account status.
Score Calculation
Scoring models such as FICO and VantageScore use this information to evaluate how risky you are as a borrower. Each factor is weighted differently.
Score Output
A number is assigned based on your behavior. A higher score means you’re more likely to repay your debts on time.
Lender Use
Lenders use your score, along with your income and other factors, to make decisions about loan approvals, credit limits, interest rates, and other terms.
Who Determines Your Credit Score?
Credit scores are generated by credit reporting agencies using data from your credit activity. In the U.S., the three major agencies — Experian, TransUnion, and Equifax — collect this information and use scoring models to calculate your score.
While the data comes from your credit history, the final score depends on the model used (like FICO or VantageScore). These models weigh certain behaviors differently but rely on the credit bureaus’ data to produce a consistent and reliable score for lenders to use.
How Is a Credit Score Calculated?
Credit scores are calculated using scoring models like FICO, which is widely used by lenders. These models pull information from your credit report and analyze it to produce a score between 300 and 850. The score reflects how likely you are to repay borrowed money based on your financial behavior.
Payment History (35%)
This includes whether you’ve made past payments on time, missed payments, or had accounts sent to collections. A consistent history of on-time payments helps build a strong score.
Amounts Owed (30%)
This includes how much debt you currently have and how much of your available credit you’re using — also known as your credit utilization ratio.
Length of Credit History (15%)
This looks at how long your credit accounts have been active. A longer history gives lenders more data to assess your financial behavior.
Credit Mix (10%)
Having a variety of credit types — like credit cards, auto loans, or mortgages — can improve your score, as it shows you can manage different types of debt responsibly.
New Credit Activity (10%)
This includes recent account openings and hard inquiries from applying for credit.
What Is Considered a Good or Bad Credit Score?
Credit scores generally range from 300 to 850, with higher scores indicating stronger credit health and lower lending risk. While individual lenders may use slightly different criteria, most follow a similar scale to classify scores:
- 800–850: Excellent
- 740–799: Very Good
- 670–739: Good
- 580–669: Fair
- Below 580: Poor
A higher score increases your chances of qualifying for loans and credit cards with favorable terms, while a lower score may lead to higher interest rates, limited options, or denial of credit altogether.
What Are the Types of Credit Scores?
There isn’t just one credit score. In fact, lenders use several different models depending on the type of credit you’re applying for. Each scoring model has its own scale and criteria, though many follow a similar range.
FICO Score
The most well-known is the FICO Score, developed by the Fair Isaac Corporation. It ranges from 300 to 850.
VantageScore
Another popular model created by the three major credit bureaus — Experian, TransUnion, and Equifax.
TransRisk Score
Developed by TransUnion, it is less commonly seen by consumers.
Experian PLUS Score
Ranges from 330 to 830 and is primarily for educational purposes.
Equifax Credit Score
Developed by Equifax, uses a scale of 280 to 850.
CE Score
Created by CE Analytics, ranges from 350 to 850.
Specialized Scores
- Insurance Score
- Educational Scores
- Business Credit Score
- Auto Score
What’s the Difference Between a FICO Score and VantageScore?
The FICO Score, developed by Fair Isaac Corporation, is the most widely used credit score by lenders and ranges from 300 to 850.
VantageScore, created by the three major credit bureaus, also ranges from 300 to 850 but uses different algorithms and may weigh recent credit behavior more heavily. Both scores consider similar factors but may yield different results.
What’s the Difference Between a Credit Score and a Credit Report?
Think of your credit report as a full credit file — a detailed record of your borrowing history. Your credit score is a quick summary — a number calculated from that information.
How Do I Find Out What My Credit Score Is?
You can check your credit score through several free and convenient options. Many credit card issuers and financial institutions provide access to your score through online banking or monthly statements.
Websites like Credit Karma, Credit Sesame, and WalletHub offer free credit score tracking and educational tools. Additionally, some credit bureaus allow you to purchase your score directly or access it as part of a credit monitoring service.
Does Checking My Credit Score Lower It?
No, checking your own credit score is considered a soft inquiry and does not affect your credit score. Only hard inquiries, such as those made by lenders when you apply for a loan or credit card, can temporarily lower your score.
What Factors Can Lower Your Credit Score?
Several factors can cause your credit score to drop, some of which may be avoidable with careful financial habits.
Late Payments
Missing credit card or loan payments is one of the most common reasons credit scores drop. Even a single payment that’s over 30 days late can be reported and negatively affect your score.
High Credit Utilization
Using a large percentage of your available credit can hurt your score. Ideally, you should aim to use less than 30% of your total credit limit to avoid being seen as overextended.
Multiple Credit Applications
Applying for several credit cards or loans in a short time frame can signal financial stress. Each application typically triggers a hard inquiry, which can temporarily lower your score.
Defaulting on Loans
When you stop making payments on a loan or credit account, it’s considered a default. This can severely damage your credit and stay on your report for several years.
Bankruptcy
Filing for bankruptcy has one of the most serious impacts on your credit score. It can remain on your credit report for up to 10 years, making it harder to qualify for new credit.
Limited Credit Mix
Having only one type of credit, such as just a credit card or only a personal loan, can slightly limit your score. A diverse mix — like credit cards, auto loans, and mortgages — is seen more favorably.
Closing Old Accounts
Canceling old credit cards can reduce the length of your credit history. Since a longer credit history generally helps your score, closing old accounts may unintentionally lower it.
Judgments or Liens
Legal judgments or tax liens filed against you can appear on your credit report and significantly harm your score, especially if they go unpaid.
Frequent Address Changes
While moving itself doesn’t directly affect your credit score, frequent changes in address can make lenders view you as less stable, especially if tied to missed payments or unstable employment.
Errors on Your Credit Report
Inaccuracies — like accounts you don’t recognize or paid debts marked as unpaid — can drag down your score. It’s important to review your credit reports regularly and dispute any mistakes.
How Often Does a Credit Score Change?
Your credit score can change as often as new information is reported to the credit bureaus — typically every 30 to 45 days. Most lenders update your account activity once a month, so your score may shift a few times within that period.
These changes are usually small, but larger moves can happen if you make a major financial decision, like paying off a loan, missing a payment, or using a large portion of your available credit.
How to Improve Your Credit Score?
To improve your credit score, focus on the following actions:
- Pay your bills on time: This includes not only your credit card bills but also your rent, utilities, phone bill, etc. Late payments can negatively impact your credit score.
- Keep your credit utilization low: Credit utilization refers to the percentage of your available credit that you’re currently using. It’s recommended to keep this ratio below 30%.
- Don’t close old credit cards: The length of your credit history plays a role in your score. Even if you don’t use a card anymore, it helps to keep it open.
- Regularly check your credit reports: Mistakes happen, and it’s possible that an error on your report is dragging down your score. You can get a free report from each of the three major credit bureaus once a year.
- Limit your applications for new credit: Every time you apply for new credit, a “hard inquiry” is added to your credit report, which can negatively impact your score.
- Maintain a good mix of credit: Having a variety of different types of credit (such as a mortgage, car loan, and credit cards) can help improve your score.
- Pay off your debt: The less debt you have, the better your credit score will be. Try to pay off your debts as quickly as possible.
- Seek credit counseling if necessary: If you’re struggling to manage your debts, a credit counselor can help you create a plan to pay them off.
- Negotiate with creditors: If you have missed payments, don’t avoid your creditors. Reach out to them and see if they can help you work out a payment plan.
- Pay your full credit card: Try to pay off your credit card balance in full each month. If you can’t, at least try to keep the balance as low as possible.
How Long Does It Take to Rebuild Your Credit Score?
Rebuilding your credit score typically takes 3 to 12 months for moderate improvements, and several years to recover from major negative events like bankruptcy. The exact timeline depends on your starting score, payment behavior, and how consistently you manage your credit.
Who Uses Credit Reports and Why?
Credit reports are used by a wide range of institutions to assess your financial reliability. These reports provide a complete view of your credit history and help others make informed decisions based on how you manage debt.
Lenders
Lenders use credit reports to evaluate your credit history before approving loans or credit cards. They assess risk and decide on interest rates or credit limits.
Credit Card Companies
Credit card companies check your credit report to set terms for new accounts, including your credit limit and interest rate.
Insurance Companies
Insurance companies may review your credit history to determine your premium rates or eligibility for certain policies.
Employers
Employers (with your permission) might check your credit report during the hiring process, especially for jobs involving financial responsibility.
Landlords
Landlords use credit reports to assess if you’re likely to pay rent on time and manage financial obligations responsibly.
Utility Providers
Utility providers might check your credit report to decide if you need to pay a deposit before starting service.
Government Agencies
Government agencies can access your credit information for background checks or to determine eligibility for certain benefits.
Debt Collectors
Debt collectors refer to your credit report to locate information about outstanding debts and repayment patterns.
What Legal Rights Do You Have Regarding Your Credit Score?
Under U.S. law—primarily the Fair Credit Reporting Act (FCRA)—you have several important rights that protect your credit information and help ensure fair and accurate treatment by credit bureaus, lenders, and other authorized parties.
Right to Access Your Credit Report
You are entitled to one free credit report per year from each of the three major credit bureaus (Equifax, Experian, and TransUnion), which you can request at AnnualCreditReport.com. During certain circumstances—such as being denied credit, employment, or insurance—you may also qualify for additional free reports.
Right to Accuracy and Dispute
You have the right to expect that the information in your credit report is accurate and up to date. If you find incorrect or incomplete information, you can dispute it with the credit bureau. The bureau must investigate the dispute—typically within 30 days—and correct or remove any inaccurate information.
Right to Privacy
Your credit report may only be accessed by entities with a legitimate purpose under the law, such as lenders, insurers, employers (with written consent), landlords, and government agencies. Unauthorized access is prohibited.
Right to Be Notified of Adverse Actions
If a company denies your application for credit, employment, insurance, or housing based on your credit report, they are required to provide you with an adverse action notice, which must include:
- The name of the credit bureau used,
- Your right to request a free copy of the report,
- Your right to dispute inaccurate information.
Right to Seek Damages
If a credit reporting agency, furnisher of information, or user of your report willfully or negligently violates your FCRA rights, you may sue for damages. This includes the right to recover actual damages, statutory damages, legal costs, and in some cases, punitive damages.
Right to Opt Out of Prescreened Offers
You can opt out of receiving prescreened credit and insurance offers that are based on information in your credit report. Visit OptOutPrescreen.com or call 1-888-5-OPT-OUT to opt out for five years or permanently.
Right to Identity Theft Remedies
If you suspect or are a victim of identity theft, you have rights under the FCRA and FACTA to help protect and restore your credit. You can:
- Place a fraud alert on your credit file (initial or extended)
- Freeze your credit reports to restrict access to new credit inquiries
- Request additional free credit reports for investigation purposes
- File an identity theft report with the FTC and credit bureaus to dispute fraudulent accounts
Right to Credit Score Disclosure (in Specific Situations)
While you do not have a general right to a free credit score under the FCRA, you are legally entitled to your score if it was used to make a credit-related decision against you. For example:
- If you’re denied credit or receive less favorable loan terms based on your score.
- If you apply for a mortgage, your score is used in the underwriting process.
The Relationship Between Credit Scores and Legal Issues
Certain legal issues can significantly damage your credit, making it harder to secure loans, housing, or even employment. Key examples include:
Legal Issues That Harm Your Score
- Bankruptcy
- Foreclosure & Repossession
- Court Judgments
- Unpaid Tax Liens
When Your Credit Score Affects Legal Outcomes
- Divorce Proceedings
- Child Support & Alimony
- Criminal & Civil Investigations
How Does Bankruptcy Impact Credit Scores?
Bankruptcy has a serious and long-lasting impact on your credit score. It signals to lenders that you were unable to meet your debt obligations and had to seek legal protection. As a result, your score can drop by 200 points or more, depending on where you started.
Chapter 7 Bankruptcy
This involves liquidating your assets to pay off as much debt as possible. It usually wipes out most unsecured debts, like credit card balances and medical bills.
Chapter 7 stays on your credit report for 10 years from the filing date. During this time, lenders may be hesitant to approve new credit, or they may offer only high-interest options.
Chapter 13 Bankruptcy
This allows you to keep your property while you follow a court-ordered repayment plan, typically lasting 3 to 5 years. After completing the plan, many remaining debts may be discharged.
Chapter 13 stays on your credit report for 7 years from the filing date. While it’s still damaging, it may be viewed more favorably than Chapter 7 since you repaid at least part of your debt.
What Should I Do If My Credit Score Drops Because of Legal Trouble?
If your credit score drops due to legal issues, such as unpaid fines, judgments, or bankruptcy, it’s important to respond with a clear and steady plan. Here’s what you should do:
- Understand the Cause: Review your credit report to find out exactly what caused the drop. Look for any new derogatory marks, such as missed payments, court judgments, liens, or bankruptcy filings. Identifying the root issue is key to developing the right strategy.
- Stay Current on Payments: Make sure to pay all bills on time, including utility bills, rent, and legal obligations like fines or court fees. Timely payments help prevent further damage and begin the process of rebuilding your credit.
- Consult a Lawyer if Needed: If your legal troubles are ongoing or complicated, speak to an attorney. They can help you understand your rights, negotiate settlements, or address any errors tied to your case that may be affecting your credit.
- Seek Help from a Credit Counselor: Certified credit counseling agencies can help you create a repayment plan, manage debt, and guide you through credit recovery. Their services are often free or low-cost.
- Rebuild Credit Step-by-Step: Apply for a secured credit card or small credit-building loan. Use it responsibly and keep balances low. Over time, this will help establish a positive credit history.
- Check for Errors and Dispute Inaccuracies: Errors on your credit report can worsen your situation. Review your reports from all three credit bureaus and dispute any inaccurate or outdated information.
- Be Patient and Stay Consistent: Rebuilding takes time. Negative marks stay on your report for years, but their impact fades if you establish a strong track record of responsible credit use.
How Can Credit Scores Impact Financial Opportunities After a Legal Case?
Legal issues can leave a lasting mark on your credit, and that damage may continue to affect your financial opportunities long after the case is closed, impacting everything from loan approvals to job prospects.
- Loan Approvals: Lenders may deny your application or offer loans at higher interest rates. A lower score suggests higher risk, which translates to stricter borrowing conditions.
- Insurance Premiums: Insurers sometimes use credit-based insurance scores to set premiums. Poor credit can result in more expensive policies.
- Rental Applications: Landlords often check credit reports to evaluate how reliable you are with financial commitments. A low score can make it harder to get approved for a lease.
- Employment: For jobs involving financial access or sensitive information, employers may review your credit report (with your permission). Negative marks can raise concerns about financial responsibility.
- Starting a Business: If you need financing to start or grow a business, poor credit may limit your access to business loans or lines of credit.
- Security Deposits: Utility providers may require higher deposits if your credit history shows missed payments or defaults.
How Long Do Negative Marks Stay on a Credit Report?
Negative items on your credit report don’t last forever, but they can stick around for several years. Here’s a breakdown of how long common negative marks remain:
- Late Payments: 7 years
- Defaults and Collections: 7 years
- Bankruptcy: 7–10 years, depending on the type of bankruptcy
- Tax Liens: Can stay for more than 7 years—or indefinitely—if unpaid
- Judgments: No longer widely reported
- Hard Inquiries: 2 years
Does Pre-Settlement Funding Affect Your Credit Score?
No, your credit score is not a factor in the pre-settlement funding approval process. Unlike traditional loans, pre-settlement funding is based on the strength and potential value of your legal claim, not your personal credit history. Most providers, including Express Legal Funding, do not perform hard credit checks or report funding to credit bureaus, so applying will not impact your score.
