Credit Score Confusion: Decoding What the Numbers Mean


Your credit score is simply a numerical interpretation of your level of financial responsibility. When a lender views your credit score, they can see at a glance what type of customer you’re likely to be.

If you have a great credit score, it tells the bank’s assessor that you have a history of always paying your bills on time and handling credit really well. However, if you have a bad credit score, the bank already knows you’ve had difficulty keeping up with your financial responsibilities in the past, so you’re automatically considered a higher risk customer.

There’s no point trying to fix your credit score without really understanding how each portion affects the final figure. If you’re not sure of the best way to get started, read some of the tips about repairing your credit at that can help set you on the right path.

How Your Credit Score is Calculated

According to Experian, your credit score is calculated using a range of different factors associated with your financial behavior. Here are the factors the credit reporting companies take into account when calculating your total score.

Payment history: Your repayment history accounts for 35% of your total score, so it makes sense to ensure your payments are always made on time. If you have a history of being late with repayments your score will be lower than someone who always makes payments on time.

Amounts owed: 30% of your FICO score is based on the amounts you owe on your outstanding debts and the utilization rate of your credit limits. If you have a couple of credit cards with balances close to the available credit limit your score will be reduced. Keeping your balances low and ensuring you’re cautious about maxing out your cards can help improve your score.

Length of credit history: The length of time you’ve been using credit accounts for 15% of your score. The age of your credit accounts plays a part in determining how responsible you are with your financial responsibilities.

Credit types: The types of credit you use can impact up to 10% of your FICO score. You might have a mortgage, an auto loan and a credit card, so the credit reporting agencies may consider this a responsible combination of credit types. By comparison, someone with several unsecured debts, such as credit cards, store cards, and personal loans, could find their score is impacted.

New credit: New credit applications and inquiries account for 10% of your score. If you’ve applied for several different credit cards in a short period of time it could be a sign of financial difficulty, so your score can be negatively affected.

When you start to understand the factors that can impact your credit score, it’s easier to start taking steps to improve your situation and take responsibility for your financial situation. Work on reducing your outstanding balances, catch up any late payments and focus on making future repayments on time, and you should find it easier to regain control of your finances.