Like it or not, your credit score is an important number. This often dictates what you can and cannot afford to purchase.

You probably already know that credit scores exist, but do you know how they are calculated? Do you know what your credit score is?

Don’t bury your head in the sand. Read on to learn more about what makes up your credit score and the steps you can take to improve it.

What is a credit score?

Your credit score is a three-digit number designed to represent your credit risk to potential lenders.

Credit scores range from 300 to 850.

Low or bad credit scores make it more difficult for you to get a loan or credit card. If you get one of these, your interest rate is likely to be high.

High or good credit scores allow you to qualify for better loans and credit cards with lower interest rates and better terms.

Your credit score is based on the information in your credit report. Credit bureaus, also known as credit reporting agencies, collect data on your credit reports, including information about your borrowing and repayment history.

There are three credit bureaus:

Credit reporting agencies keep your credit reports, but they don’t calculate credit scores. Instead, different companies use their own credit scoring systems to calculate your score.

What is a credit scoring model?

Your credit score may vary depending on the credit scoring model used to calculate it.

There are two main credit scoring models in the US:

  • FICO: The most famous and widely used credit scoring model. It exists since 1989.
  • VantageScore: Started in 2006 as an attempt to introduce some competition to FICO and ensure a fair calculation of credit reports and scores.

Both FICO and VantageScore rely on the same data, but each credit scoring company weighs the information somewhat differently.

There are also five other specialized and less commonly used credit scoring models:

  • TransRisk
  • National equivalence
  • Credit expert
  • CE credit scores
  • Insurance credit scores

Your CE credit score is used by Quicken Loans and provided for free by Quizzle. Insurance credit scores can affect your insurance premiums.

But you can’t control which credit scoring model is used when you apply for a new card or loan. So the best tool in your arsenal is to be smart with your finances and avoid things like late payments and fees.

Understanding FICO Credit Scores

Your FICO credit score consists of a number ranging from 300 to 850. A score of 600 and below is considered poor, while a score of 750 and above is considered excellent. The higher you get your number, the better.

What goes into calculating your FICO score?

Your FICO credit score is calculated using five main factors. Each factor is weighted, with some more important than others to your overall score.

Payment history

When calculating your credit score, FICO looks at your payment history. If you do them on time, you will be viewed more favorably by lenders and therefore have a better credit rating.

But if you have a lot of late or missed payments, your credit score will suffer and you’ll have fewer options when it comes to getting a loan.

Payment history accounts for 35% of your credit score.

Use of credit

Just because you have affordable credit doesn’t mean you have to max out your credit cards.

Yours use of creditwhich tells FICO how many available credit limits you’re using shows whether you’re smart about borrowing.

Keeping your loan utilization at or below 30% is good. Ideally less than 10%. That means you don’t want your balance to exceed $3,000 on a card with a $10,000 credit limit.

Credit utilization is 30% of your credit score.

Length of credit history

The length of your credit history shows how long you’ve been borrowing. If you haven’t had any credit cards or loans in your name in a while and you’re just starting to build your credit history, you’re likely to get a lower score.

As you add credit cards and increase your limits (by paying on time and using your available credit wisely), your history grows and your score should rise.

Credit history is 15% of your credit score.

New loan

New credit can be good or bad for your score. If you open a bunch of new credit card accounts all at once, it will tell lenders that you are irresponsible and your credit score will suffer.

But opening a new credit card every now and then can really help boost your score. That’s because adding a new card and keeping a low balance can lower your overall credit utilization.

New credit is 10% of your credit score.

Credit mix

It is good if you have a mixture of loans in your name. This means not only relying on credit cards to build your credit, but also installment loans like a car loan or mortgage.

While this factor doesn’t make or break your credit score, a good combination shows lenders that you’re responsible for managing your various types of debt — as long as you make your payments on time.

Credit mix is ​​10% of your credit score.

What constitutes a VantageScore credit score?

Like your FICO score, your VantageScore can range from 300 to 850. It includes similar factors as your FICO score, but with different weights for each factor:

Unlike FICO, VantageScore takes into account your total balance, which includes all loans in your name (credit cards, car loans, mortgages, etc.).

VantageScore also ignores fees, while FICO identifies them on your credit report and takes them into account when calculating your score.

And while FICO is more widely used, free credit check companies like Credit Karma often use VantageScore.

Why are credit scores important?

Whenever you apply for a loan or credit card of any kind, the lender will look at your credit score.

  • Credit availability: A bad credit score will close a lot of doors when it comes to getting a loan because many lenders won’t want to take a chance on you.
  • High interest rates: Your loan will have a higher interest rate, which increases your monthly payment.
  • Low credit limits: Credit card companies see you as a higher risk, so your card credit limit will be lower.

If you want to get the best rate on credit cards and loans, you’ll need to work to improve your credit score.

How to improve your credit score

With hard work and determination, you can improve your credit score as long as you know where your weaknesses are and what you need to improve.

Pay your bills on time

The best you can do improve your credit score these are timely payments. This might mean sitting down and looking at your finances to figure out when to schedule payments for things like utilities and loans.

If you struggle to remember payment deadlines, consider automatic withdrawals or set periodic reminders on your phone to avoid accidental non-payment.

Professional advice

An application focused on building credit can help improve your credit score. Through small loans or recurring accounts, these six applications give your credit score and the history of shocks.

Pay the balance

Once you have your payments under control, make a plan pay off credit card debt to reduce the loan utilization ratio.

Start with high balance credit cards and try to get them at 30% or lower. Keep in mind that cards with a higher interest rate will charge more if you don’t pay them off in full each month, so try to lower your balances on those cards first to lower your total monthly payments.

Ideally, you should get to a place where you can pay off your cards in full each month, although this is difficult for many people.

Blend your credit

If you already have a good credit score and want to improve it even more, consider mixing the types of loans in your name.

Maybe you could take out a loan for your next car or become a home owner with a mortgage instead of a renter.

What you don’t want to do is start applying for new types of loans when you don’t need them; it can work against you (and your good credit score) even if you’re trying to do the opposite.

Don’t be afraid to check

It’s a myth that checking your credit score lowers it. In the world of lending, there are two types of inquiries: hard and soft.

  • Hard credit request occurs when a bank or other lender checks your credit to see if you should borrow. This can hurt your credit score, especially if you get a lot of hard inquiries in a short period of time.
  • Request for a soft loan happens when you check your own credit report. It doesn’t hurt your credit rating.

Many financial institutions and credit card issuers offer free credit checks to customers. Or you can try a credit monitoring service like Credit Karma to monitor your credit score.

You can also get a free credit report from each of the three bureaus once every 12 months at

Your credit score is important if you want to borrow money without high fees or interest rates. By learning what factors determine your score, you’ll know how to improve it, paving the way for better terms and rates in the future.

Other credit scoring resources

How to improve your credit score

Credit score factors

What is a good credit score?

FICO score vs credit score

Kathryn Hyles lives in Ohio with her husband and two children. During the day, she manages a team of writers and graphic designers, and in her spare time she writes.

Rachel Christian is a Certified Personal Finance Educator and Senior Author of The Penny Hoarder.

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