Your credit score is the key to many of life’s most important financial milestones—opening a credit card account, applying for a mortgage or loan, and more.
So understanding your credit score should be easy, right? We at BBVA Compass believe it should be. We’re here to explain the basics, so you can begin improving your credit score today.
Every year, you can request one free copy of your credit report from each of the three major credit reporting bureaus—Equifax®, Experian™, and TransUnion®—at annualcreditreport.com.1 Your credit report is a detailed report of your credit history, including types of credit, the length of time your accounts have been open, and whether you’ve paid your bills on time.
It’s a 3-digit number that is a representation of your creditworthiness—basically, how likely you are to pay your bills on time and if you will be able to handle an increase in credit. The credit score most widely used by the credit bureaus is the FICO® score, which provides a credit rating range from 300 to 850. The higher your credit score, the more likely you are to be approved for credit.
If your credit score is above 720, you have the strongest credit history and qualify for the best loan terms and interest rates.
With a credit score between 680-719, your credit score is good. You will qualify for most loans, and probably have a solid credit history with a few missed or late payments or a shorter credit history.
If your credit is between 640-679, you may have blemishes on your credit report and you might be restricted to higher-than-average interest rates on loans.
If you have several accounts in collections, are no longer paying back debt, or have filed for bankruptcy, your credit might be poor or in the 580-639 range. At this range, it may be difficult to qualify for a loan. If you do qualify, you may be restricted to a loan with a high interest rate.
A score below 580 is considered bad. You will likely need help to rebuild your credit history. At this range, it may be difficult to qualify for a loan.
Remember, these credit score ratings are for informational purposes only. BBVA Compass and other lenders use credit scores and other factors to set their own qualification guidelines.
Your credit score is calculated based on how you have managed your debt over time. Generally, the credit bureaus use the following criteria to calculate your score:
35% Payment History
This includes your past payment history for credit cards and installment loans, such as personal, auto, and mortgage loans. The larger and later the late payment, the more it will count against you. Bankruptcies, foreclosures, collections, liens, and judgments are also considered part of your payment history.
30% Amounts Owed
FICO® looks at the percentage of available credit that you have used. If you’ve maxed out your available credit, it assumes you are overextended and may not be able to make all your payments on time.
15% Length of Credit History
This factor considers the number of years you have held and managed credit effectively. The longer you maintain and pay off credit, the better candidate you are for a loan or credit card.
10% Credit Mix
A mix of credit accounts and installment loans with good payment history demonstrates your ability to manage finances in multiple scenarios.
10% New Credit
Established credit is always more valuable than new credit; however, every credit account has to be new at some time. A good rule of thumb is to refrain from opening several new credit cards or installment loans at once. Opening multiple new accounts in a short period of time may negatively impact your credit score.
Understanding how long information will appear on your credit report can help you anticipate the time required to repair your credit score. Not all records will negatively impact your credit, including on-time payments and soft inquiries.
A soft inquiry occurs when you request your credit report or when a company requests your report on its own for promotional reasons (like for a preapproved credit card). Soft inquiries do not affect your credit score. A hard inquiry is an inquiry you initiate (like when you apply for a loan) and can affect your credit score for up to 2 years.
A charge-off occurs when a creditor notifies the credit bureaus that it has charged off a debt—meaning the creditor has given up on trying to collect the unpaid debt. A charge-off can negatively impact your credit score.
A judgment is a debt you owe through the courts and occurs when someone sues you for money and you lose.
A tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt on real estate, personal property, or financial assets. Failing to pay a tax lien will impact your credit score for life.
To maintain a healthy credit score, take the following steps within the time frame below.
Upon account opening
Repairing a low credit score takes time. Improvements may take 6 months or more to reflect in your overall credit score.
To build credit history, you first need to establish credit. To do this, you could open a secured credit card or cash-secured loan, which are typically secured by a savings account.
This type of credit account is especially good for people who are new to credit as your account credit will not exceed the balance of your savings account.
It’s also important to manage usage and pay your balance on time every month.
Many groups advertise credit repair services, claiming to be able to eliminate the negative bad items from your credit report. Unfortunately, there is no “quick fix” for improving your credit. No organization can legally remove accurate negative information from your credit report. You can improve your credit report and score, but it takes time, effort, and sticking to a debt repayment plan.
Generally, cosigners remain responsible until that debt is repaid. Contact your lender for information about your specific circumstances.
Please contact our loan customer service department at 1-800-239-1996, and discuss your specific situation with them.
We recommend that you visit the Consumer Financial Protection Bureau (CFPB) website for information.
Got questions about your credit report? Find out everything you need to know: where to get your credit report, how to read it, and what your score means.
Your credit score is important because it impacts almost every big financial decision you make. Find out what a good credit score is and how to get it.
FICO and myFICO® service are trademarks and/or registered trademarks of Fair Isaac Corporation. Experian is a registered trademark of Experian Information Solutions, Inc. Transunion is a registered trademark of TransUnion, LLC. Equifax is a registered trademark of Equifax, Inc.
The content provided is for informational purposes only and is not considered or intended to be legal, tax, or investment advice. You should consult your legal, tax or financial advisor about your personal situation. Third party site links are provided for your convenience. BBVA Compass is not responsible for, and does not guarantee the products, services, content, privacy, security or accessibility standards of third party sites. Information contained in this webpage was obtained from EVERFI, annualcreditreport.com, consumer.ftc.gov, myfico.com, consumerfinance.gov, experian.com, transunion.com, and equifax.com. BBVA Compass does not guarantee that using this information will improve your credit score or overall credit standing.
1annualcreditreport.com is the only source for your free annual credit reports as authorized by federal law and is a registered trademark of Central Source LLC.