Credit is all about creating trust. Imagine you are having dinner at a restaurant. When you get the bill you realize you don’t have money and you ask the waiter if you can pay later. The waiter agrees because they know you and trust the bill will be paid. But, what if you are a stranger to the waiter, chef, and owner? It is helpful to have another way to prove you can be trusted.
In the US, there are three bureaus that track and rate your credit trustworthiness: Equifax, Experian, and Transunion. Together, these three organizations create a record of how well you have repaid debt in the past and send this information to two primary credit scoring companies: the Fair Isaac Corporation (FICO) and VantageScore. Both companies use this information to assign you a credit score ranging from 300 to 850.
General credit score ratings:
- Fair 580-669
- Good 670-739
- Excellent 740-850
The closer your score is to 850 the better, allowing you to access better financial products with lower interest rates, which means you won’t have to pay as much money back to the lender. You can get your free credit score on websites like VantageScore, mint.com, and creditkarma.com. These websites are not the authority and can only provide you with a good sense of where your credit score stands. Use these credit scores only as a guideline.