Personal Finance 101: Credit Scores


Who cares about your credit score? Lots of people, including Upstart, which is why you should care too. Establishing and maintaining your creditworthiness, especially at the beginning of your career, can save you lots of money in lower interests rates and give you access to more financial options.

We know it can feel a bit daunting, so here is everything you need to know to begin to take control of your credit.

What is a credit score?

It is a grade used to help people make decisions about your finances and credit-worthiness faster and more objectively. There are 3 major credit reporting agencies: Experian, Equifax, and Transunion. Each agency reviews your financial history and compiles your credit report. A credit report is a complete history of your credit lines, loans, payments, and shows who has checked your score recently. They use this full credit report to calculate and assign you a credit score, which is commonly referred to as your FICO score ((Fair, Isaac, and Company). Credit scores range from 501 to 990. The national average score is around 692.

Your FICO will vary slightly between agencies, but any major differences may indicate an error or misconduct, so it is important to get in the habit of checking your credit score at each agency.

How do I check my credit score?

You are entitled to a free copy of your full credit report every 12 months from each credit reporting company. There are a few companies that make it free and simple to check your credit score:

Do credit checks lower my credit score?

It depends. There are two types of credit checks: hard inquiry and soft inquiry (also known as a hard pull or soft pull).

  • Hard inquiries are typically initiated by companies that are making a lending decision about you. When you apply for a credit card, a car loan or mortgage, it is safe to assume that they will run a hard inquiry into your credit. This type of credit check will knock a few points off your score for up to six months.

  • Soft inquiries have no impact on your credit score. When you check your score, that’s categorized as a soft inquiry. These pulls are made by potential employers and landlords as well as banks, credit card, and mortgage lenders, who use them to confirm your identity and decide whether you qualify for pre-approval.

We do a hard inquiry after an upstart submits a profile to verify that they meet our credit minimum.

How is my credit score calculated?

Your score is calculated by reviewing your data in five key categories:

  • Payment history – do you always make payments on time?

  • Amounts owed – how much debt do you owe? What is your debt-to-credit ratio (i.e. how much money you owe versus how much credit you have available)?

  • Length of credit history – how often do you use each line of credit and how many accounts do you have?

  • New credit –  How many new accounts have you opened and how many recent credit inquiries have been made?

  • Types of credit used – Do you have a mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans?

The exact importance and weight of a single factor depends on your overall credit profile. So payment history may account for 40% of one person’s credit score, but only 30% of another’s. Unfortunately, there is no consistent scoring methodology, but has a free credit monitoring tool, which you can use to keep track of your credit score every month and analyze each of these components.

My score is low, but I have a really good explanation…

Unfortunately, you will rarely have the opportunity to explain – and even if you do, most financial services have hardline credit requirements.

It may not be fair, but it’s reality. If you only have one or two late payments on your account, you may ask the creditor for a “good faith adjustment”. Some creditors will remove a late payment or two from your credit report.