What is a Credit Score? —

And Other Common Credit Questions

At some point in your life, you have probably heard the term credit score. You may have seen commercials talking about how important it is. Maybe your parents mentioned it when you were going to college. Maybe it’s the reason you signed up for your first credit card.

For a lot of people, thinking about credit scores can make you feel like you’re back in school, trying to learn how to do taxes and balance a checkbook. It can be confusing and complicated to manage your credit in today’s world. Countless myths and bad advice surround credit scores, making it hard to tell what’s real and what’s fake. I’m here to help you get rid of the mystery so you can master your credit score.

By the end of this blog, you’ll know all about:          

  1. What a credit score is
  2. What determines your score
  3. What is considered a good or a bad score
  4. The average credit score by age
  5. How to improve your overall score

And that’s not all! So, settle in and let’s get ready to learn!

What is a Credit Score? 

Simply put, a credit score is a number between 300-850 that shows a person’s creditworthiness. If you are trying to buy a house, get a new car, or make other high-profile purchases, your credit score is an important factor in determining whether you get a loan or not.

The higher your credit score, the better you look to lenders. Your credit score can determine many things, like the size of an initial deposit on your cell phone, utilities, or rent. This can also determine your interest rate or credit limit on a credit card. You are not born with a credit score; there are determining factors that will affect and change your score as you age.

What Determines Your Credit Score? 

Five major factors will determine your credit score, no matter where you live or what your age is:

  1. Payment history – 35% of the total score
  2. Total amount owed – 30% of the total score (includes the percentage of credit available to you that is being used by you)
  3. Length of credit history – 15% of the total score (the longer your history, the less risky you are)
  4. Types of credit – 10% of the total score (includes installment credit, like car loans or mortgage loans, or revolving credit, like credit cards)
  5. New credit – 10% of the total score (includes how many new accounts you have, how many new accounts have been applied for recently, and when the most recent account was opened)

What is the Difference Between a Credit Score and FICO Score? 

If you’ve heard of credit scores you’ve probably also heard the term FICO score. This is a type of credit score created by the Fair Isaac Corporation. It is one of the most commonly used systems to predict whether someone will have difficulty paying back a loan.

FICO updates its calculation methods semi-often, however, it is up to the lenders to determine how and when to implement any changes. The version most commonly used (Score 8) made some key changes to the scoring system, including:

  1. Increased sensitivity to often-used credit cards, even if they have low credit card balances.
  2. Increased forgiveness if late payment is a one-time event and other accounts are in good standing.
  3. Divided consumers into more categories to show a better representation of risk. For example, if you are someone with little to no credit history, you will not be graded at the same level as those with full credit history.

What is a Good or Bad Credit Score? 

As you may have guessed, a low number on your credit score is not good. You already know a credit score can range from 300-850, but how is it broken down? Take a look at the following categories:

  1. 800-850: Excellent – This is well above average; lenders know that you’re an exceptional borrower.
  2. 740-799: Very Good – This is above average and indicates that you are dependable as a borrower.
  3. 670-739: Good – Near average, this is considered a good score by most lenders.
  4. 580-669: Fair – This is below average, but many lenders will still approve loans at this level.
  5. 300-579: Poor – This is well below average. At this level, you are considered a risky borrower.

Does Checking My Credit Score Lower It? 

This is one of those damaging myths that prevent many people from improving their scores.

 The short answer to this question?


 It’s important to make sure you regularly check your credit as it can actually lead to an increase in your score. You will be able to see exactly when your credit dipped down or improved and make stronger credit decisions based on that information. Many people do not even know their credit score as they are scared it will cause their score to drop if they check on it.

Now, there are some distinctions to make when I say it’s okay to check your credit score. If you are checking your credit score personally, it is considered a soft inquiry which will not negatively affect your score. This kind of inquiry also covers when a lender pre-approves you for a loan, but you don’t formally apply for it. Credit companies may do a soft inquiry to target you in their marketing campaigns as well that will not impact your score.

On the other hand, you will want to watch out for hard inquiries, which can negatively affect your credit score. A hard inquiry is when a lender checks your credit report after you apply for financing. It can also be used during a background check for a new job or a lease rental application. This stays on your record for two years. A hard inquiry will usually drop your score, but not enough to significantly make a difference. However, if you do this often in a short period of time, you could see a significant drop in your score and you will be considered a higher risk. To the lender, it may seem like you are trying to quickly increase your available credit.

What is the Average Credit Score for my Age? 

In America, the average credit score is 691. In Iowa, the average is higher, around 708. However, just because this is the average for the state doesn’t mean that will automatically apply to you. Age can play a factor in your credit score, as well as the stage of life you’re in. Someone who has an established career and family and is closing on a new house is in a very different credit situation than a college student who just moved into their first apartment and works a part-time job in between classes.

Lucky for you, as you can tell by looking at the factors that determine credit scores, it’s common for your score to improve as you age. If you are:

  • 20-29: Average = 662
  • 30-39: Average = 673
  • 40-49: Average = 684
  • 50-59: Average = 706
  • 60 +: Average = 749

However, these numbers aren’t a guarantee. There is no magical switch that changes your credit score once you hit a certain age. You have to make solid credit decisions to continue to increase the number.

How Can I Improve My Credit Score? 

Bad credit decisions happen to everyone. Even with a great financial education, you can make risky moves or fall on hard times that make your score worse. Your credit score revolves around your credit history, the total amount owed, length of credit history, types of credit, and new credit. So, it makes sense that to improve your credit score, you will have to make strong credit decisions. If you make a mistake here and there, that doesn’t mean you’re doomed. There are several ways you can improve and maintain a positive credit score, including:

  1. Setting up automatic online payments for your credit cards and loans
    • Make sure you have the reminder emails or texts turned on so that you never miss a minimum payment again.
  2. Paying your credit card debt
    • Make sure you’re working to pay off your credit card debt quickly by contributing more than the minimum payments as much as possible. This doesn’t mean you should make other risky financial decisions to get it paid off, but you should make a repayment plan/goal and work towards it each month.
  3. Checking your interest rate disclosures
    • Every credit card account will provide you with a disclosure. This is a document outlining all the charges and terms that come from using that card, in this case, your interest rate. Like in other blogs where we talked about the best ways to pay off your debt, it’s best to tackle your high interest rates first. This creates more cash flow for the rest of your credit card debt and will increase your credit score the more you pay off.
  4. Keeping unused credit card accounts open
    • Now, when you’re first opening a credit card account, you want to make sure you fully understand why you’re opening it and what exactly you will be using this account for. Many people struggle with their credit card debt and ultimately hurt their credit score because they do not monitor their spending or make smart purchasing decisions. Do not open new accounts just because you can or because they promised you some great promotional offer that’s not necessarily in your best interest in the long term. Stick with the ones you will use regularly, even if it’s just for gas or groceries. However, if you do have unused accounts open, keeping them open and in good standing can help your credit score, especially if you start using them in the future.
  5. Applying for a secured credit card
    • If you have struggled with bad credit and are not able to get a regular credit card, you may want to try applying for a secured credit card. There are a variety of secured cards to fit your needs, whether you want to use them for travel, rewards, credit building, cashback, fair credit, low APR, and more. This card is like your bank debit card because it only lets you spend the amount you have on deposit. If you get this card and make payments on it regularly, it can help you to fix your credit rating and qualify for a regular credit card. If you’re just starting out and have little to no credit history, this could also be a great option for you.

What’s Next? 

So, now that you know all about credit scores, what’s next? Well, if you’ve never checked your score, a good first step might be to see where you’re at. If you’re looking into financing, remember you can always speak to your local lender at Availa Bank to get their advice first. Our experienced bankers can answer any questions you may have about credit scores that weren’t answered here and create a solution that’s tailored to you. Give us a call or stop at your local branch today!