Understanding the Credit Rating Scale

By Maureen Shelly · September 01, 2022 · 5 minute read

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Understanding the Credit Rating Scale

It’s common knowledge that a person’s credit score can have a significant impact on their ability to get the best deals on loans and credit cards. And that can potentially save borrowers many thousands of dollars over a lifetime. But exactly what the credit rating scale involves is a mystery to many people. That’s a problem for potential applicants who’d like to boost their score before shopping around for a loan.

We’ll offer insights into how credit scores are calculated, what credit range might qualify as “good” versus “exceptional,” and what you can do to qualify for the best interest rates.

The Three Major Credit Bureaus

Credit bureaus are independent agencies that collect and maintain consumer credit information and then resell it to businesses in the form of a credit report. The Fair Credit Reporting Act allows the government to oversee and regulate the industry.

There are three major credit bureaus that 90% of lenders pull scores from:

•   Equifax, whose scores range from 280 to 850

•   Experian, whose scores range from 300 to 850

•   TransUnion, whose scores range from 300 to 850

What Actually Factors into Your Credit Score?

The FICO® Score uses a scoring model that sources data from credit bureaus to calculate your score. Elements used in the FICO scoring model (as of this writing, that’s FICO Score 8) include:

•   Payment history: 35%

•   Credit utilization (amount owed): 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Wondering what those terms mean? Let’s break it down:

Payment History

Payment history looks at whether you pay your bills in a timely manner. Do you have a history of paying bills a couple weeks late, or are you the type who always paid your cable bill even before it was due? That’s the kind of thing that will come into play here.

Credit Utilization

“Amount owed” is pretty self-explanatory — it’s how much total debt you’re currently carrying. Your “credit utilization ratio” may not be quite so clear. That’s the amount of credit you actually use compared to the amount of credit available to you. Lenders generally like to see a credit utilization ratio of 30% or lower.

Recommended: Credit Card Utilization: Everything You Need To Know

Length of Credit History

This factor looks at the age of your oldest and newest accounts and the average age of all your accounts. To lenders, longer is better.

Credit Mix

Credit mix considers the variety of your debt — is it primarily credit card debt? Do you carry student loan debt or have a mortgage? A desirable mix is a combination of revolving debt (lines of credit, credit cards) and installment debt (loans with fixed repayment terms like student loans and car loans).

New Credit

New credit looks at what accounts have recently been opened in your name, or if you’ve taken out any new debts.

How’s Your Credit?

Where your credit score falls on the scoring table determines how “good” your credit is. Here’s a breakdown of the credit rating scale according to FICO standards.

•   Exceptional: 800-850

•   Very Good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Very Poor: 300-579

Ready for a plot twist? FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history. In effect, each consumer has multiple credit scores.

You may also hear the phrase “educational credit score.” This can refer to the proprietary scoring models used by TransUnion and Equifax. The term means that these scores may not be used by lenders, but they help educate consumers about their credit scores.

Check your credit score with SoFi Relay.

Trying to Improve Your Credit Score With Credit Card Debt

You’ll notice that a lot of information around improving your credit scores focuses on debt reduction. After all, 30% of your FICO Score is based upon outstanding debt. By paying that down on time, you may be able to boost your credit score. One potential action item for those trying to strengthen their credit history is to work on paying down credit card debt.

Credit card debt may be the highest-interest debt you’re carrying. After all, the average credit card interest rate is currently around 15%, compared to federal student loans, currently at 4.99%, and the average mortgage, hovering around 5.8%. That means if you have credit card debt, it could be your fastest growing debt. By getting rid of it, you may be able to significantly reduce your outstanding debt.

One way to get out of credit card debt is to consolidate it into a lower-interest option. With a balance transfer credit card, you can move your high-interest debt to a 0% interest card. The catch is that the 0% interest is temporary, and after a given amount of time (typically six to 21 months), the interest rate shoots up.

One other tip for potentially boosting your credit score: Thoroughly review your credit report for errors. Mistakes happen, and some of them can bring down your score. You can file a dispute online to correct or remove the information.

Recommended: Using a Personal Loan to Pay Off a Credit Card

The Takeaway

Credit scores, calculated based on information in your credit report, influence the interest rates you qualify for on loans and credit cards. The higher your score, the less you’ll pay in interest. The factors that determine your score include your history of on-time payments, your total debt compared to the amount of credit available to you, the types of debt you have, and the age of your accounts. One of the best ways to boost your credit score is to pay down credit card debt.

A common way to consolidate high-interest credit card debt is with a low-interest personal loan. While your credit score is likely to be reviewed by lenders when you apply for a personal loan, there are other financial factors they consider, such as your current employment situation and income. If you think a personal loan might be right for your financial situation, SoFi offers personal loans with no fees required — and no headaches.

SoFi’s Personal Loan was named NerdWallet’s 2022 winner for Best Online Personal Loan.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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