What’s Your Number? An Introduction to Credit Scores

Angela Colley — Building Blocks

If you want to take out an auto loan, get a mortgage, open a new credit card, or even use PayPal’s “Bill Me Later” feature, your credit score is going to come into play. That three-digit number also means the difference between getting approved with the best interest rates or paying through the nose to borrow money. Simply put, your credit score is a snapshot of your finances, and it’s easy to assume that if you generally manage your money well, you’ll score highly, and if you make some mistakes, you’ll fall down the ladder a bit.

But credit scores are far more complex than that. Your score is calculated based on most of your financial moves stretching back seven to 10 years.

Here’s where things get more complicated: You also have lots of credit scores. Your FICO score, the most widely used model developed by the Fair Isaac Corporation, is actually three separate scores, based off each credit bureau’s—Equifax, TransUnion, and Experian—credit reports. There’s also the VantageScore, another scoring model developed by the credit bureaus directly that cuts out the Fair Isaac middleman. There are many other more specific scores out there, some that track your banking history, measure your risk when buying a mortgage, and on and on.

It’s confusing, but most financial institutions rely heavily on your FICO scores over other scoring models when evaluating you. As long as you know your FICO credit scores, you’ll have a good idea of how much credit you may be approved for, and at what interest rates.

Whether you want to improve your ranking or just hold on to a good thing, there are some universally good financial moves you can make. These actions have the most positive influence on your credit scores:

Mistakes can wreak havoc on your credit scores. These three big moves can have the worst impact:

Taking a hit to your credit scores sucks, but there is some good news: It isn’t forever. The impact is the worst as soon as it is reported. Over time, those moves will have less of an impact on your credit score, meaning if you keep doing the right thing, that mistake won’t drag you down as much. And once you reach the seven-year mark (10 years for some major financial moves like bankruptcy), it will disappear altogether.

If you want to see your credit scores, you can order a copy from Experian, TransUnion, or Equifax. Just be careful not to sign up for monthly monitoring—each bureau tries to steer you toward that option and canceling is a hassle.

Though they don’t access your exact scores, you can also get an idea of what your credit score looks like through estimates offered on free sites like NerdWallet or Credit Karma.

All infographics by Eli Miller.