Consumer credit (“credit” for short) is an important financial resource. Credit is the ability for a person to borrow money to purchase goods, assets, or services with the understanding that they will repay the lender at a later date. Credit makes it possible for people to handle large purchases in smaller affordable payments. Credit could be used to purchase a vehicle, a home, a vacation, and more. Many people start their consumer credit journey in college. Let’s start of on the right foot!

Credit is all based on trust. A lender reviews a borrower’s lending history to assess the borrower’s trustworthiness and determines whether to extend credit to the borrower. Lender’s do not do this out of the kindness of their heart. Lender’s will charge borrowers’ interest until the borrower fully repays their borrowed amount (debt).

What is a credit report?

A credit report is similar to a college transcript. Just like a college transcript is a record of your grades, a credit report is a record of your borrowing history. Lenders utilize credit reports to evaluate a borrower’s performance repaying their debts. Whether a borrower repays their debt on time, late, or not at all, it’s all recorded in a borrower’s credit report.

The three major credit report providers in the US are Equifax, Experian, and Transunion. These three providers are referred to as Credit Bureaus and/or Credit Reporting Agencies. Credit reports assist lenders in identifying which borrowers are trustworthy and are likely to repay their debts. Visit to review all 3 of your major credit reports for free once per year. 

What is a credit score?

A credit score is a three-digit number that usually ranges from 300 – 850. Based on the information in your credit report, the credit score is a mathematical calculation of your creditworthiness and the likelihood that you will repay your obligations on time. Ultimately, a credit score helps lenders learn how risky it is to lend to a potential borrower.

A higher credit score like an 850 signifies that a borrower is trustworthy and more likely to repay their debt. A lower credit score like a 300 represents someone who is risky and based on their credit history less likely repay their debt. You want a higher credit score for the future. Individuals with higher credit scores receive lower interest rates when borrowing from lenders. 

How are credit scores calculated?

Credit scores are calculated using the information in your credit report and calculated using credit scoring models provided by analytics companies. The most common scoring models are the FICO Score and the VantageScore. The FICO Score model is the credit scoring model most commonly used by financial institutions in their lending decisions. Check out our resource tab to learn more about the FICO score formula. 


How Is My Credit Score Calculated? (