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Credit Score: Defined And Explained

Victoria Araj5-minute read

January 11, 2023


The higher your credit score, the more advantages you’ll have when you apply for a mortgage. Let’s look at how your credit score is calculated and what that means for you.

What Is A Credit Score?

Your credit score is the numerical representation of your credit history. It’s a three-digit number that expresses how consistent you are when you borrow money and pay back debts.

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How Is Credit Score Calculated?

Your credit score is based on information the three major credit bureaus – Equifax®, TransUnion® and Experian™ – collect about you from creditors. Creditors include companies you borrow from or make payments to. Your mortgage or student loan lender, your credit card company, your landlord and your utility company can all report information to the credit bureaus about how you make payments.

Your credit score comes from the information on your credit report. Credit reports are detailed summaries of your borrowing history. They show previous and current credit accounts and your payment history. When you apply for a loan, your lender uses your credit report and score to determine whether to lend you money.

There are many places where you can learn your credit score. You’ll probably find that your score changes depending on where you look. There are a couple of reasons for this:

  • Each credit bureau gets slightly different information about you based on which creditors report to them and what information they report.

  • The credit bureaus (and other companies that give you a credit score) use different calculations to determine your score. These calculations are known as credit scoring models. Many banks and lenders use the FICO® Score, but there are many other models available.

What’s The Difference Between FICO® Score And VantageScore®?

While FICO® Score is the most well known score, VantageScore® is their direct competitor. Both of these companies use a credit score range of 300 – 850.

FICO® and VantageScore® share data but tend to weight scoring factors differently, such as payment history, new credit, credit history, etc. But keep in mind, your credit score will be similar with both.

What Affects Your Credit Score?

Your credit score is made up of several factors. These factors include payment history, types of credit, new credit, credit utilization and length of credit history.

Payment History

When a lender looks at your credit report, they want to see that you pay your debts back in full and on time. Your payment history has a strong influence on your credit score. It shows how consistently you pay off debt and make on-time payments. It also shows delinquent accounts and items like bankruptcies, judgments and liens. A poor credit history can have a significant negative effect on your credit score.

Types Of Credit

Credit diversity is another factor that’s considered in your credit score. A mixture of types of credit can positively impact your credit score because it shows lenders that you can successfully manage different types of debt. Establishing a mix of credit types (like credit cards, mortgages, personal loans, etc.) may raise your score slightly. 

New Credit

Opening a lot of new credit within a short period of time can signify to creditors that you’re risky. The less new credit that’s on your report at one time, the better. How you shop for credit has a small effect on your overall credit score.

Credit Utilization

Credit utilization refers to how much of your available credit you’re using. To find your credit utilization ratio, divide the total of your debts by the total of your available credit. A high credit utilization ratio may lower your credit score; creditors want to see that you’re not constantly hitting or exceeding your credit limit. Keeping your credit card balances low is important for maintaining a low credit utilization ratio.

Length Of Credit History

If you’ve made consistent and timely payments on your credit card for years, it’s easier to determine that you’re a reliable borrower. However, if you’ve made payments for only a few months, your ability to pay back debt isn’t as established. A longer credit history is generally better for your credit score.

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What Is A Good Credit Score?

Most people consider “good credit” to be a score of 700 or above. Here is a breakdown of FICO score ranges:

  • 300 – 579: Poor credit
  • 580 – 669: Fair credit
  • 670 – 739: Good credit
  • 740 – 799: Very Good credit
  • 800 – 850: Excellent credit


When you’re applying for a mortgage, the credit score requirement varies by your lender and the type of loan you want. Below, we’ve outlined the minimum credit scores for each type of mortgage.

Conventional Loan Requirements

Conventional loans offer great interest rates and low down payment options. Shoot for a credit score of 620 or above if you’re looking for a conventional loan.

FHA Loan Requirements

FHA loans, backed by the Federal Housing Administration (FHA), require a credit score of at least 500.

VA Loan Requirements

If you’re a veteran or active-duty service member, you could get a Department of Veterans Affairs (VA) loan. Although the VA has no minimum credit requirement for VA loans, lenders can set their own requirements; if you use Rocket Mortgage®, you’ll need a minimum credit score of 580.

USDA Loan Requirements

USDA loans are only for homes in eligible rural areas, as determined by the U.S. Department of Agriculture (USDA). To get a USDA loan, you need a minimum credit score of 640 and a household income that’s no higher than 115% of the area median income.

How Can I Check My Credit Score?

It’s easy to check your credit – you’re entitled to a free credit report from all three major credit bureaus once a year. It’s a great idea to check your credit report annually to make sure there aren’t errors.

Get your free credit report and score.

Create a Rocket Account to see where your credit stands.

How To Improve Your Credit Score

If your credit score isn’t where it needs to be to get the loan you want, there are several ways you can boost your score.

Pay Bills On Time

Paying your bills on time is one of the simplest ways to increase your credit score. Know when your bills are due or set up automatic payments to make sure you never miss a payment – especially when paying your mortgage.

Reduce Your Debt

Reducing your debt is another way to improve your credit score. When you pay down your debt, your credit score improves because your credit utilization ratio goes down.

Take inventory of your debt and make a plan to pay it off. There are a few different approaches you can take. You can quickly reduce debts by paying more than the minimum payment each month. You can tackle your smallest debts to reduce the number of bills you’re paying. Or you can work on your highest-interest debts first. Do some research and crunch the numbers to figure out which approach will work best for you.

Avoid New Credit Applications

When you apply for credit, the credit check generally decreases your score by a few points. While you’re trying to increase your credit score, avoid applying for new credit like credit cards and loans.

The Bottom Line: Stay On Top Of Your Credit Score To Get The Best Terms For Your Mortgage

Your payment history, credit types, new credit, credit utilization and credit history length are all important elements that influence your credit score.

The credit score you’ll need for a mortgage depends on the type of loan you’re applying for. If your score needs improvement, there are several simple things you can do – like setting up automatic payments and avoiding new credit applications – to raise your score.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.