A credit score is a numerical representation of your creditworthiness, a predictive tool indicating your likelihood to repay future debts. These scores are generated through computer models, with different scoring models tailored for specific purposes.

Credit scoring models operate by assessing the credit behavior of all borrowers, creating a scoring system that spans from excellent to impaired credit. Your credit actions are then measured against this spectrum, resulting in a numerical score.

While the exact factors considered may vary by model, the core components often include:

Payment History: A record of your payment performance.

Amounts Owed: The total debt you carry, credit utilization, and account types.

Length of Credit History: The duration of your credit accounts.

Types of Credit Used: The variety of credit accounts in your portfolio.

New or Recent Credit: The recent credit inquiries and new account openings.

These standardized credit scores allow lenders and creditors to evaluate borrowers objectively. They don’t consider demographic differences like income or age, ensuring a level playing field. A high income won’t save your credit score if you miss payments, while responsible lower-income individuals can achieve higher scores through timely payments.

It’s vital to remember that your credit score is dynamic and influenced by your daily financial activities, such as credit card usage and bill payments.

FICO® Credit Score:

• The FICO score is the most commonly used credit scoring model among lenders.
• FICO 8 is the most widely used
• FICO Auto Scores are tailored for auto lending.
• FICO 3 and Bankcard Scores, used in credit card decision-making
• FICO 2, 4, and 5 are widely used for mortgage lending.
• FICO 9 resembles FICO 8 but has distinct medical collections and rent payment considerations.
• Scores range from 300 to 850, with higher scores indicating better creditworthiness.

UltraFICO™ Credit Score:

• Introduced in 2018, UltraFICO considers banking history to benefit consumers with limited or poor credit histories.
• It evaluates information from checking, savings, or money market accounts.
• You can opt-in to obtain an UltraFICO score through Experian®.

VantageScore®:

• The three major credit bureaus jointly develop VantageScore: Equifax®, Experian®, and TransUnion®.
• Like FICO, VantageScore ranges from 300 to 850, with similar credit factors.

Educational Credit Score:

• One or two credit bureaus typically provide educational credit scores and may contain less comprehensive information.
• They are often available through free credit score apps and don’t impact your credit score.

• Retailers authorized to provide FICO scores offer access for a fee.
• Experian provides a free FICO 8 score, while some banks and credit card issuers offer free FICO and VantageScore monitoring.
• Educational VantageScores can be accessed through free apps such as Credit Karma, NerdWallet, WalletHub, and more.

Among the various credit scoring models, FICO is the most widely used and trusted by lenders. Understanding the five key factors that contribute to your FICO score can provide valuable insights into how to manage and improve your creditworthiness:

1. Payment History (35%):

• Your payment history is The most significant and critical component of your FICO score. It accounts for a substantial 35% of your score.
• Payment history reflects how reliably you’ve made payments on credit accounts like loans, credit cards, and mortgages.
• Timely payments with no late or missed payments positively impact your score, while late payments, defaults, and accounts in collections can have a significant adverse effect.

2. Amounts Owed (30%):

• The second most influential factor, at 30%, is the total amount you owe, also known as your credit utilization.
• FICO considers the balance on your credit accounts relative to their credit limits. A high credit utilization ratio, where you use a large portion of your available credit, can lower your score.
• Keep your credit card balances low compared to your credit limits, ideally below 30%.

3. Length of Credit History (15%):

• The length of your credit history accounts for 15% of your FICO score.
• This factor evaluates how long you’ve been using credit and the age of your credit accounts. A more extended credit history impacts your score positively.
• Opening new credit accounts can shorten your average account age, which may lower your score temporarily.

4. Types of Credit Used (10%):

• FICO considers your profile’s mix of credit types, contributing 10% to your score.
• Having a diverse range of credit accounts, such as credit cards, installment loans, and mortgages, can positively affect your score.
• However, it’s essential to manage all these accounts responsibly.

5. New Credit (10%):

• New credit is the final factor influencing your FICO score, contributing 10% to the overall score.
• This factor assesses recent credit inquiries and new credit accounts opened.
• Frequent credit inquiries and opening several new credit accounts can suggest higher risk to lenders and potentially lower your score.

Understanding the intricacies of credit scores, the different models available, and where to access them empowers you to take control of your financial journey. Monitoring your credit scores can help you make informed decisions and achieve a healthier financial future.

Reach out to our team today to learn more.