4 Useful Facts About Your Credit Score

What does your credit score say about you?

If you were to sit down and make a list of the things you think about as an adult that you never considered when you were a kid, I bet credit scores would be on that list. That little three-digit number has a big impact on your life as an adult, however -- your credit score determines what loans and credit cards you'll be approved for, and the interest rates you'll pay to borrow money.

Consumer credit reporting and credit scores are relatively new. In the 1960s, computers came into use to consolidate and track consumer credit data, and the more than 2,000 credit bureaus that existed across the country at that time shrank to five, then down to the three main ones we have today: TransUnion, Experian, and Equifax. They use two different credit scoring models, VantageScore and FICO^Ⓡ Score.

The FICO^Ⓡ Score, named for its originator, the Fair Isaac Corporation, was created in 1989. It provides lenders an easy way to evaluate your creditworthiness. More detail can be gleaned from your full credit report, but seeing where you fall in a range of 300 (poor) to 850 (excellent) is a pretty quick way for a lender to decide whether to let you borrow money (and at what interest rate). The number is calculated based on various factors, each carrying a different amount of weight in the total score: your payment history (35%), the amount you owe (30%), the length of your credit history (15%), the mix of credit accounts you have (10%), and how often you apply for new credit (10%). Here are four interesting and useful facts about your credit score to keep in mind as you manage your financial life.

1. Your income doesn't matter

Just in case you were thinking that wealthy people automatically have higher credit scores than those of us who aren't rich -- they don't. Your income has no bearing at all on your credit score, and doesn't appear in your credit report either. The only way your income can impact your credit score is if you have a loss of income and start missing payments on your debts. For example, if you get laid off and can no longer afford to make on-time payments to your credit card's issuer, those late or missing payments will be reported to the credit bureaus, and your score will go down. Otherwise? Whether you make $30,000 a year or $300,000 a year, it doesn't matter for your credit score.

2. Having a perfect score isn't necessary to get the best rates

According to some financial experts, you don't even have to have an 800 or better to qualify for the best interest rates. Even a score of 760 to 780 tells lenders you manage credit responsibly and will pay them back, and anything higher is just icing on the cake. In fact, if you have a look at the stats for the best credit cards for excellent credit, the score range recommended for approval is 670 (good) to 850 (excellent). There's no harm in striving for that 850 (and if you can achieve it, you'll be in rare company; according to Experian data, just 1.31% of Americans had an 850 in the third quarter of 2021), but it's not necessary.

3. Your spouse's credit score doesn't impact yours

When people get married, a lot of them merge their finances with their spouse's. But it's important to note that being married doesn't matter for your credit score. In fact, another piece of information that doesn't appear on your credit report is your marital status. There's only one way for the information to be linked, and that's if you apply for credit together, because a lender looks at both of your credit histories. If you have excellent credit, but your spouse only has fair credit, and you apply for a mortgage in both of your names, your mortgage lender will see that and may approve your request (and figure out your interest rate) based on the lowest middle score between you. They may get three credit scores for each of you (from the three bureaus), then assign a rate based on the lower of the two middle numbers.

4. Paid-off debts still have an impact

If you've paid off debt, it still appears on your credit report and will have an impact on your credit score for a period of time, usually seven years. Bankruptcy, which is the worst thing that can happen to your credit, often sticks around for 10 years. It can be good to have some paid-off accounts reflected in your score, if they were in good standing and paid off on schedule, like a car loan you paid on time and in full. But if you have debt that went to collections, even if you later paid off or settled that debt, it'll still be there on your credit report for a period of time.

Now that you're armed with even more information about your credit score, you're ready to go forth and meet your financial goals. If your score needs some work, don't worry -- there are simple steps you can take to improve it.