How to Read Your Credit Scores?

With billions of pieces of data floating around, it’s little wonder that the people who use this data to make decisions turned to computers to help make sense of it all. Starting back in the 1950s, some companies, including one called Fair Isaac Corporation, began to model credit data in hopes of predicting payment behavior. 

Until recently, the three major credit bureaus offered different scoring models that Fair Isaac, the developers of the FICO score, created for them. 

Each one called the score by a proprietary name. Now they also use an identical credit-scoring model called the VantageScore. Your credit score is a three-digit number that rules a good portion of your financial life, for better or worse.

You may have no credit score if you don’t have enough credit history. Understanding what factors into your credit score is an important step in ensuring that yours is the best it can be. This section takes a closer look at the two main types of credit scores — FICO and VantageScore — and helps you understand what makes them up.

What Does Your Credit Score 

Based on your credit history, your credit score determines how likely you are to repay a loan. The credit score uses your credit history to create a three-digit score based on five key factors: Your payment history, the amount of debt you owe, the length of your credit history, the types of loans you have and recent credit applications.

A high credit score is an indicator that you pay bills on time and use available credit responsibly while avoiding negative things like late payments of more than 30 days, collections and bankruptcy. People with lower scores have typically had trouble making payments in the past and pose a higher risk to lenders, resulting in higher interest rates if they obtain credit.

The longer your credit history is and the more positive information you add to it, the less impact negative information has on your credit score. After seven years, most negative information no longer affects your credit score.

Each credit scoring model uses its own formula to calculate your score. Some of the most popular scoring models include FICO and AdvantageScore.

Credit Score Ranges Explained

Credit scores typically range from 300 to 850, with 850 representing a perfect credit score. A higher credit score means better credit. The ranges of credit scores are as follows:

  • Below 580: Poor
  • 580 to 669: Fair 
  • 670 to 739: Good 
  • 740 to 799: Very Good
  • Above 800: Exceptional

Credit Score Components

For a score to be calculated, you need to have at least one account open and reporting for a period of time. In this category, the Vantage people have the current edge. They require that you have only one account open for at least 3 months, and that account must have been updated in the last 12 months. 

FICO requires you to have an account open (and updated) for at least six months. Although having no credit history makes it difficult for you to get credit initially, you’ll find it a lot easier to build credit for the first time than to repair a bad credit history (which is like being down two runs in a ballgame and trying to catch up). In this section, we give you the skinny on both main types of scores.

The most widely used of these credit scores is the FICO score. Until recently, the proprietary formula for FICO scores was a well-guarded secret. Creditors were concerned that if you knew the formula, you may be tempted to manipulate the information to distort the outcome in your favor. 

Well, that may or may not be the case, but if creditors are looking for good behavior on your part, it only makes sense to tell you what constitutes good behavior. In 2001, Fair Isaac agreed with us, with a little help from some regulators, and dis- closed the factors and weightings used to determine your credit score.

FICO scores range from 300 to 850. The higher the number, the better the credit rating. FICO takes into account more than 20 factors when building your score; the importance of each depends on the other factors, the volume of data, and the length of your history. Your FICO score consists of five components:

1). Paying on time (35 percent): Payment history is considered the most significant factor when determining whether an individual is a good credit risk. This category includes the number and severity of any late payments, the amount past due, and whether the accounts were repaid as agreed. The more problems, the lower the score.

2). Amount and type of debt (30 percent): The amount owed is the next- most important factor in your credit score. This factor includes the total amount you owe, the amount you owe by account type (such as revolving, installment, or mortgage), the number of accounts on which you’re carrying a balance, and the proportion of the credit lines used. For example, in the case of installment credit, the proportion of balance refers to the amount remaining on the loan in relation to the original amount of the loan. For revolving debt, such as a credit card, this amount is what you currently owe in relation to your credit limit. You want a low balance amount owed in relation to your amount of credit available. Having credit cards with no balances ups your limits and your score.

3). The length of time you’ve been using credit (15 percent): The number of years you’ve been using credit and the type of accounts you have also influence your score. Accounts that have been open for at least two years help to increase your score.

4). The variety of accounts (10 percent): The mix of credit accounts is

a part of each of the other factors. Riskier types of credit mean lower scores. For example, if most of your debt is in the form of revolving credit or finance-company loans, your score will be lower than if your debt is from student loans and mortgage loans. Also, the lender gives more weight to your performance on its type of loan. So a credit card issuer looks at your experience with other cards more closely, and a mortgagee pays closer attention to how you pay mortgages or secured loans. An ideal mix of accounts has many types of different credit used.

5). The number and types of accounts you’ve opened recently, generally in the last six months or so (10 percent): The number of new credit applications you’ve filled out, any increases in credit lines that you requested (unsolicited ones don’t count), and the types and number of new credit accounts you have to affect your credit score. The reasoning is that if you’re applying for several accounts at the same time and you’re approved for them, you may not be able to afford your new debt load.

What constitutes a VantageScore?

A relatively new and up-and-coming entrant to the scoring field is the VantageScore. Vantage needs 3 months of history and an update in the last 12 months for a score. VantageScore’s range is from 501 to 990. Your VantageScore is made up of six components:

1). Payment history (32 percent): Again, payment history is the most significant factor when determining whether an individual is a good credit risk. Your history includes satisfactory, delinquent, and derogatory items.

2). Utilization (23 percent): This factor refers to the percentage of your available credit that you have used or that you owe on accounts. Using a large proportion of your overall available credit has a negative effect.

3). Balances (15 percent): This area includes the amount of recently reported current and delinquent balances. Balances that have increased recently can be an indication of risk and can lower your score.

4). Depth of credit (13 percent): The length of history and types of credit used are included. A long history with mixed types of credit is best.

5). Recent credit (10 percent): The number of recently opened credit accounts and all new inquiries are considered. New accounts initially lower your score because companies initially aren’t sure why you want more credit. However, after you use the accounts and pay on time, they can help raise your score by adding positive information.

6). Available credit (7 percent): This factor refers to the amount of available credit for all of your accounts. Using a low percentage of the total amount of credit available to you is good.

If you’re trying to build a credit history for the first time, you’re an immigrant, or you’re in the FBI’s Witness Protection Program and you’re looking for your first unsecured credit card in your new name, look for a lender that uses a VantageScore to grant credit after you have established a credit record. Examples of ways to start a credit history include using a secured card or using a passbook loan.

The Expansion score

It used to be that if you didn’t have much information in your credit file, known as a thin file in the business, you were in a pickle. Lenders had a more difficult time assessing your risk because they couldn’t get a score for you. Well, thank heavens for Yankee ingenuity, because just as soon as a problem shows up, so does a solution.

FICO calls it an Expansion score. Essentially, it’s a credit-risk score based upon nontraditional consumer credit data (in other words, it’s not based on data from the three major national credit bureaus). 

The purpose of this new score is to predict the credit risk of consumers who don’t have a traditional FICO score. The use of FICO Expansion scores gives millions of new consumers who don’t have extensive credit histories an opportunity to access credit. This category includes the following people:

  • Young people just entering the credit market
  • New arrivals and immigrants to the United States
  • People who previously had mostly joint credit and are now widowed or divorced
  • People who’ve used cash instead of credit most or all of the time

How to Get Your Credit Score

A variety of sources provide information about your credit score based on information from your credit report. A service like Credit Karma allows you to check your score for free. At some banks, credit unions, and credit card companies, you can find your credit score on your account statement or online.

Finally, you can check your credit score with any of the major credit reporting agencies: Equifax, Experian, and TransUnion.

Some of the companies that tell you your credit score also provide you with an indicator that can help you figure out if you have a good or bad credit score and what factors affect your credit score.

Credit scores are calculated using information from your credit report. Thanks to the financial emergency caused by the global pandemic, you can now access your credit report every week for free through

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