What is a credit score?
Your credit score is a representation of your creditworthiness. The higher the score, the more likely lenders are to grant you credit.
Creditors use one of two models to calculate your credit score: FICO or VantageScore.
| Model 1: FICO Score Key |
| 800 to 850 – Exceptional |
| 740 to 799 – Very Good |
| 670 to 739 – Good |
| 580 to 669 – Fair |
| 300 to 579 – Very Poor |
| Model 2: VantageScore Key |
| 750 to 850 – Excellent |
| 700 to 749 – Good |
| 650 to 699 – Fair |
| 550 to 649 – Poor |
| 300 to 549 – Very Poor |
Did you know? 66% of Americans hold FICO credit scores ranging from Good to Exceptional. 62% of Americans hold VantageScore ratings ranging from Fair to Excellent.
How FICO and VantageScore Calculate Scores
Are you wondering how your credit score is calculated?
You can find the answer by examining the factors FICO and VantageScore models use to evaluate your credit. While they are very similar, there are some small differences between them.
You Fico score is calculated based on the following criterium:
| Payment history: extreme impact |
| Age and type of credit: high impact |
| % of credit limit used: high impact |
| Total balances and debt: moderate impact |
| Recent credit behavior and inquiries: less impact |
| Available credit: less impact |
You VantageScore is calculated based on the following criterium:
| Payment history: 35% |
| Amounts owed: 30% |
| Length of credit history: 15% |
| New credit: 10% |
| Credit mix: 10% |
You must have a line of credit that’s at least six months old for FICO to score you.
VantageScore will score you if you have a credit line younger than six months.
Click here to find out your credit score today.
Weighing Factors
Your credit score is a result of various factors…
1. Credit Age
Creditors like to see a long history of established credit. The older your active accounts are, the higher your score will be.
Pro tip: If you have an old account that you don’t use much, keep it open. Closing it will shorten your credit age, resulting in a score drop.
2. Credit Utilization
You may see credit utilization referred to as debt-to-credit ratio. People with higher credit scores have low debt compared to the amount of available credit they have at their disposal.
Pro tip: An easy way to keep your credit utilization low is by paying the balance of your credit cards before the close date of each cycle.
3. Payment History
Your credit report reflects how responsible you are with making timely payments. Even a payment 30 days late can negatively impact your score.
Foreclosures, delinquent payments, and accounts assumed by a debt collector can significantly impact your score.
4. Credit Distribution
The more diversified your credit lines are, the higher your score will climb. Lenders like to see that you’re equally responsible with mortgage lines, fixed loan lines, and revolving credit lines.
Pro tip: If only revolving lines of credit fill your profile, your credit score may not be achieving its full potential. Consider diversifying your profile by acquiring a different kind of loan, provided you have the funds to pay it.
5. Hard Inquiries
Any time you apply for a line of credit, lenders conduct a hard inquiry into your credit profile. A lot of hard inquiries in a short amount of time means a drop in your credit score.
Hard inquiries do not occur when creditors look at your credit profile on their own without your consent. They do this to identify potential borrowers they can direct their marketing towards.
Also, when you apply for a mortgage or an auto loan through a loan finder service, only one hard inquiry is recorded on your profile even though multiple lenders respond.
Did you know? One hard inquiry can drop your score by as much as ten points.
Click below to find out your credit score from all 3 bureaus.
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