Do You Know Your Credit Score?

Posted Jul 27 2010 by Lori Lamb in 

Do you want the home of your dreams? Would you like a nice dependable car? If the answer is yes, you may want to take a look at your credit score before applying for credit to purchase these and other items.  What IS a credit score? A credit score is a three-digit number that banks, lenders, and other creditors use to determine risk and the percentage rate at which money will be loaned to a potential borrower.  The higher the credit score, the lower the risk to the creditor.  The lower the credit score, the higher the risk to the creditor. We earn our terms depending on how well we manage our credit.

The Fair Isaac Corporation (FICO®) developed the most widely used credit score model. The FICO® score ranges from 300 – 850. The credit reporting agencies Equifax and TransUnion both use their version of the FICO® scoring model. Equifax uses the privately labeled “Beacon” and TransUnion uses the “FICO® Risk Score Classic”. Experian has discontinued using the FICO® scoring model as of February 14, 2009, and instead uses its own scoring model called Vantage ScoreSM.  The score ranges from 330 – 830. The Vantage Score was developed by the three national credit reporting agencies- Experian, TransUnion and Equifax.

Knowing there are different scoring models out there and that most lenders use THE FICO® we will outline the important factors that will help consumers know their score by learning how the FICO® scoring works. This information can be found at www.MyFICO.com as well as at our FIT Academy online course http://credit.org/classes/

Your credit score is calculated and based on these top five factors:

  • 35% – Payment History (This includes any public records, e.g. bankruptcies, tax liens, judgments as well as late payments and collections)
  • 30% – Outstanding Debt (amount owed on specific types of accounts, balances on accounts compared to the limit, also known as utilization)
  • 15% – Length of Credit (age of oldest account, average age of accounts, time since account activity)
  • 10% – New Credit (number of recently opened accounts, proportion of accounts that are recently opened, number if credit inquiries, reestablishment of positive credit history following past payment problems)
  • 10% – Types of Credit Used (number of accounts in use: presence, recent information on all types of accounts)

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About the Author

Lori LambLori Lamb is a passionate financial educator and brings her strong background, experience and knowledge of consumer credit protection laws and ever-growing knowledge of the financial industry to help consumers gain the knowledge they need to succeed financially. Learn more about Lori.View all posts by Lori Lamb →

  • Ana Baeza

    This article is very helpful and teaches consumers how their FICO score is calculated, in order to help them keep it at an optimum level, in order to help the consumer live a lifestyle that they want and obtain the goods they desire.

  • Scott Russell

    This article was very informative. It was easy to read and it flowed very well. The information is something everyone needs to know. Thank you for writing it.

  • April Landry

    This article is so very informative. Your FICO score is your financial DNA. When you apply for credit, the financial institutions do not know who you are but they form an oppion of who you are based on your FICO score therefore, knowing how your score is calculated is crutial and most helpful.

  • Sergio Tolossa

    Such a good article with great infomation. Our credit reports are so crucial to our financial long term health. Its unfortunate that with a down economy so many state programs have been cut especially in education. If we invest in financial education such as this our youth in middle and high schools maybe able to avoid some of the pit falls that many americans have recently have had to endure.

  • April Deleon

    Great article Lori like always you break things down so that the average person can understand. This really gives every one a much more clear picture of how that "MAGIC" number called your credit score is calculated. Thanks Lori.

  • Gladys

    Knowing what your score is when planning for a big purchase, such as a new home or a car, and how financial institutes use your score is a big help. Reviewing your credit report on an annual basis can also help ensure credit bureaus are reporting information correctly. It will also uncover any incorrect information you can dispute in advance to eliminate any "surprises" you may find at the time of your purchase. Thanks for the great information Lori, I look forward to reading more of your articles!

  • Kim

    This article gives the consumer the break down of how the fico score is calculated, rather then just giving the score without knowing what it is based on. I think this information about your score, credit card debt, learning about a financial budget and saving should be a requirement in school.

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