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Your credit score may seem random, but it tells lenders and other creditors a lot about your financial behavior. It’s calculated from a mix of factors in your credit report and suggests how likely you are to fulfill financial obligations, such as a lease or loan.
A typical credit score falls somewhere between 300 and 850 (though some industry specific ones could go as low as 250 or high as 900). The higher the number, the better your credit history. A score of 670 or higher is considered “very good,” but the average score nationwide is around 700. Keep in mind that older people tend to have higher credit scores than younger people, often simply because they've had a longer time to accumulate credit use.
Your credit score can be used by lenders, creditors, and even insurance companies to gauge your creditworthiness. The more "creditworthy" you are, the easier and cheaper it is to borrow money, secure insurance, and qualify for lower interest rates.
Landlords may do a credit check (which may not include your credit score directly, but includes information about how you use credit) to assess how responsible you are and decide whether to rent you an apartment. In short, a good credit score and a responsible history of using credit matters.
Credit scores weren’t standardized until 1989. Before that, businesses used credit reporting methods that were a lot more subjective and based on character assessments and things like age, race, and marital status—all factors that are absent from today’s credit reports in favor of analytical models.
In the 1960s, there were thousands of credit bureaus. That number eventually shrank to three major bureaus. In 1989, the Fair Isaac Corporation introduced a credit scoring model and the first generalizable credit score—the FICO score, which is still used today. In the mid-1990s, mortgage guarantors Fannie Mae and Freddie Mac integrated FICO scores as part of their mortgage decision-making, and credit scores were entrenched into the modern-day financial process.
Sometimes, you’ve got to spend money to make money, and the same is true for credit scores. You can’t buy a better credit score outright, but using credit wisely is a tried-and-true method for boosting your score over time.
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