A Primer on Credit Scores, What They Mean and How They Are Calculated


Most consumers — and especially those who have applied for credit cards and/or large loans in the past — know that having a good credit score can bring big benefits. Just a few of the advantages borrowers with high credit scores can enjoy include faster and easier approvals of credit card and loan applications, higher credit limits, and reduced interest rates when borrowing money. Additional benefits can include lower car insurance rates, waived security deposits when opening utility accounts, and a greater chance of approval when applying for a rental home or apartment.

But, while most may be aware that having a strong credit score is advantageous, not as many consumers know exactly what their credit score means, what goes into it and how to monitor it. Read on for a quick rundown on some of the basics of your credit score, how to get it and what it can mean for you.

What does my credit score mean?

Lenders use credit scores to gauge how likely borrowers are to repay their debts, all based on their history with paying back borrowed money and with paying their bills in a timely manner. The calculations used result in a three-digit rating, with most credit scores landing between 300 on the low end and, at the top end, 850 — which represents a perfect credit score. The higher your number, the better the credit rating … and the more likely lenders are to let you borrow money and to give you favorable/low interest rates when doing so.

High credit scores reflect a history of positive financial habits and activities such as paying bills before they become overdue and using credit in a responsible manner. Low credit scores, on the other hand, indicate a history of negative financial habits and activities such as making late bill payments, having accounts go into the collections process and filing for bankruptcy.

For the most part, financial activities with negative impacts on a borrower’s credit score become less impactful over time — especially if the borrower begins exhibiting more responsible, positive financial behaviors. And after seven years, most negative financial history will no longer be used in the credit-score calculation.

What goes into my credit score?

Some of the leading factors used to compile a borrower’s credit score include:

  • Payment history, with on-time payments rewarded with higher scores
  • Total amount of debt, with borrowers rewarded when a low percentage of the amount they’re authorized to borrow is actually being utilized (known as “credit utilization”)
  • Age of credit accounts, with a longer credit history considered favorable
  • Types of credit accounts, with a good mix of credit categories rewarded (as this is considered to show that a borrower is experienced with managing credit and debts)
  • Recent applications for credit, with a large number of new credit accounts having been opened by the borrower considered by lenders to be risky

What’s a good credit score … and a bad one?

Generally, any credit score of 670 or higher — which is the case for roughly 65% of consumers — is considered to be a good one. In 2021, the average FICO credit score among U.S. consumers was 716.

The credit-score ranges and how they are typically viewed by lenders include:

  • Under 580: Poor
  • 580 through 669: Fair
  • 670 through 739: Good
  • 740 through 799: Very good
  • 800 and higher: Excellent

How can I get my credit report and credit score?

By law, each of the three major nationwide credit-reporting agencies — Equifax, Experian and TransUnion — are required to provide U.S. consumers who request it with a free copy of their credit report once a year. To request a credit report (which includes the loan and payment history the credit-reporting agencies maintain on them, all of which are used to calculate their credit scores), consumers can visit annualcreditreport.com and fill out an online request form. 

While a free credit report does not include a credit score, it can help consumers monitor the financial information that the credit-reporting agencies have collected about them. And, should they discover any errors that may be lowering their credit score, consumers can dispute them.

Some of the ways to see your credit score include securing it free of charge from a credit card statement, loan statement or a credit-score service, or paying to get it from a credit-reporting agency. Another popular option for getting a free credit score is creditkarma.com. In addition, for a fee, myfico.com will provide consumers with their FICO credit score, which is utilized by a majority of top lenders.

At The Southern Bank, we pride ourselves on offering friendly, personalized service to all of our customers — and that includes providing guidance when you have questions about any of our banking services. To learn more about our Personal Banking services ranging from Personal Checking and Personal Loans to Savings & Money Market, Certificates of Deposit (CDs), Mortgages and more, check out the Personal Banking page on our website or visit one of our local branches for friendly, in-person service with a smile.