Good Number, Bad Number: Do You Really Know What your Credit Score Means?

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Credit scores exist in order to help lenders predict your likelihood of paying back a loan on time, using a set of metrics that takes all items on your credit report and turns them into a score that can be analyzed should you decide to apply for a loan, a new apartment or any other big ticket items. Companies use your credit score to figure out if they can expect on-time payments, as well as set interest rates or credit card limits, and more. Sometimes, employers reference your credit report to get a sense of your trustworthiness or fiscal responsibility.

Types of Credit Scores

A common misconception about credit scores is that there is one be all, end all score, but that’s not actually the case. There are a few different types of credit scores, used for different situations, which can sometimes make it harder for users to get a handle on what their actual score is. Vantage and FICO are the two major names in credit scores, but there are also industry-specific credit scores used to determine your creditworthiness when it comes to saying, applying for a mortgage or auto loan.

Vantage—A model developed by the three major credit reporting agencies, TransUnion, Experian, and Equifax, the Vantage model is often used by lenders and uses a rating system that ranges from 300 to 850. A good Vantage score is anything above 700, while an excellent score is anything above 750.

FICO—Developed by a company known as the Fair Isaac Corporation and later shortened to FICO, this score is the most well-known scoring model in the United States and is based on a rating system that ranges from 300 (very poor) to 850 (excellent). In general, users with a FICO score above 670 have a score considered to be good, while anything over 800 is regarded as being exceptional.

 

What Factors Are Most Important in Determining Credit?

In both the FICO and Vantage systems, factors like your payment history, credit utilization, the number of accounts and total debt all come into play, though each respective model places more emphasis on certain criteria the other may not value quite as much. FICO scores are most heavily influenced by your payment history as it relates to loans and credit card bills, while Vantage also values payment history as well as the age of your credit card and loan accounts and the percentage of credit limit used.

Factors like your age, race, gender or where you live are not included on your credit report, though some factors like your salary, where you work or length of employment may come into play when applying for a loan—though they are not included in credit reports either. Should your credit score be subpar, look into credit score repair as a possible solution to getting back on track.

Use This Information to Become Financially Fit

Checking your own credit history won’t actually hurt your account, so it’s a good idea to check these frequently to see how you stack up.  Most reports will show the areas where you need to make some improvements, like how much credit you’re currently using or how often you pay your bills on time. You’ll improve your credit by making a concerted effort to make all payments on time, as well as from things like keeping your accounts open for an extended period of time. Your score is comprised of a lot of little things, each needing attention, and care.