Understanding the Credit Rating Scale

May 14, 2019 · 4 minute read

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Understanding the Credit Rating Scale

Although it’s fairly common knowledge that a person’s credit score can have a significant impact on his or her ability to get a loan, exactly how the credit rating scale works can seem pretty mysterious.

That’s true, in part, because there is more than one credit score, and not all lenders use the same one. Plus, there are plenty of moving parts that determine whether a score goes up or down.

There are many factors involved, but put simply, a credit score is a number that provides information to a lender about how risky it would be for them to lend money to you. The majority of your credit history is compressed into one single number and, although that number can’t predict your future bill-paying performance, it does represent how well you’ve managed your credit in the past. When lenders use your credit score, they’re assuming your past behavior will predict future repayment performance.

This post attempts to offer insights into how credit scores are calculated, and what might qualify as “good” credit versus “exceptional” credit. Credit rating scales can make anyone’s head spin—they’re a very complex concept. While we’ll do our best to break everything down, we always recommend you speak to a licensed financial professional if you have questions about the ins and outs of credit ratings and credit scores.

The Three Major Credit Bureaus

There are the 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 (which is the acronym for the Fair Isaac Corporation) 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%
•   Amounts owed: 30%
•   Length of credit history: 15%
•   Credit mix: 10%
•   New credit: 10%

Wondering what these all actually mean? Let’s break it down:

•   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.

•   Amounts owed might be self-explanatory—it’s how much debt you’re currently carrying. This is also where your credit utilization ratio comes in. Your credit utilization ratio is the amount of credit you actually use compared to the amount of credit available to you.

•   Length of credit history looks at “how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts,” according to MyFICO.com .”

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

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

To add another twist to the situation, your exact FICO score can vary based upon which version of the FICO Score is used by which credit bureau. Learn more about FICO Score versions here .

How’s Your Credit?

After your credit score is calculated, where it falls on the scoring table determines how “good” your credit is. So, 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

FICO has stated, according to Forbes.com , that 90% of the top lenders in the United States use their scores.

Having said that, the Consumer Finance Protection Bureau (as quoted in the Forbes article) also shares that FICO has used more than 60 different score models since 2011 alone; for example, auto lenders may refer to FICO® Auto Scores, while lenders reviewing credit card applications may use FICO® Bankcard Scores—or they might use FICO Score 8.

Mortgage lenders, on the other hand, often use one of these three options:

•   FICO Score 5, also known as the Equifax Beacon 5.0
•   FICO Score 2, also known as Experian/Fair Isaac Risk Model V2SM
•   FICO Score 4, also known as TransUnion FICO Risk Score, Classic 04

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

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 reducing your debt. 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 improve their credit score is to work on paying down credit card debt.

Credit card debt may be the highest-interest debt you’re carrying. (After all, credit card debt interest rates are currently around 17%, compared to federal student loans currently at 5.05%, and the average mortgage hovering around 4%.) That means if you have credit card debt, it could be your fastest growing debt—and by getting rid of that, you may be able to significantly reduce your outstanding debt.

Before we get into ways to help crush that credit card debt, we’d be remiss if we didn’t include one other tip for potentially boosting your credit score: You may want to thoroughly review your credit report for errors; there could be something on your credit report that is inaccurate and bringing down your score as a result.

Eliminating Your Credit Card Debt

Alright, now it’s time to talk about getting rid of that credit card debt balance. One way to get out of credit card debt is to consolidate it into a lower-interest option. One such option is a balance transfer credit card, which usually involves transferring credit card debt to a 0% interest credit card. The catch is that the 0% interest is often just a promotion, and after a given amount of time, the interest rate could shoot up.

Another option is to consider consolidating your high-interest credit card debt with a low-rate 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 lenders also 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 absolutely no fees—and no headaches.

Apply for a personal loan online at SoFi. It’s fast, easy, and convenient.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
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


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