The Plain English Guide to Credit Scores

NEW YORK – April 8, 2022 – (

iQuanti: Your credit score is an essential financial measure. It can affect your ability to get loans and credit cards, buy a house, rent an apartment in some places, and sometimes even find a job.

But it can be difficult to understand what impacts your score, who calculates it and how it does it.

Below, we’ll explain credit scores in more detail so you can be a more informed borrower.

Who determines my credit score?

There are three credit bureaus that calculate your credit score:

  • Experian
  • Equifax
  • Trans Union

To do this, they collect all kinds of information from various lenders with whom you have loans or credit cards.

They each calculate a score using software created by the Fair Isaac Corporation (FICO) that runs your data through a complex formula. Credit scores start at 300 and can go up to 850, but the exact values ​​of a “good” or “excellent” credit score depend on the scoring method used.

Is there more than one credit score?

Your FICO score is perhaps the most important score to keep in mind because it is how credit bureau information is collected and evaluated.

However, each office receives slightly different information, so their scores may differ a bit.

There are also other scoring models. For example, the VantageScore model is used by sites like Credit Karma. It can help you estimate your credit score, but most people will use your FICO score to assess your credit.

What affects my credit rating?

Your FICO score is determined by 5 factors:

1. Payment history — 35%

Payment history looks at how many payments you’ve made on time. An on-time payment history increases your score.

On the other hand, late or missing payments can hurt your score.

2. Use of credit — 30%

Credit usage measures your balances on each card and across all cards against each card’s limit and your total limit.

To calculate credit usage, you divide your total credit balance on all cards by your total credit limit on all cards. You can do the same for each card.

The lower the usage, the better your score because you’re less likely to default on your balance. As a general rule, you want to stay below 30% on every card and on all cards.

3. Length of credit history — 15%

This looks at the age of your oldest and youngest accounts and the average age of your account. A longer credit history improves your score because it provides more evidence that you are a responsible borrower.

4. Credit composition — 10%

The credit breakdown looks at the types of accounts you have. More diversity leads to a higher score because it shows you can handle a variety of accounts.

For example, having a car loan, credit card, and mortgage will be better in this area than just having a credit card.

5. New credit — 10%

Every time you apply for credit, you go through a formal credit check, called a thorough investigation. This hurts your credit because, in the eyes of the lender, there’s always a chance you’ll apply for new credit because you’ve maxed out your other accounts.

The effect wears off and serious inquiries disappear from your credit file after two years.

Simplified credit

Ultimately, lenders take a risk every time they lend money. Your credit score is a rating they can use to assess this risk by estimating your chances of repaying your debt. There are many scoring models, but all three bureaus use FICO, and most lenders will take your FICO score into consideration for the loan.

To increase your credit score, you must prove that you are a responsible borrower. So always make your payments on time and keep your balances low. Also, keep your accounts open but don’t ask for credit too often. Keep going and your score will improve, as will your financial opportunities.

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The Plain English Guide to Credit Scores

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