How Credit Scores Work
Do you know what credit is? Learn how to establish a strong foundation to gain credit worthiness.
How My Credit Score Works
What is credit?
Credit is your ability to borrow money or enter into agreements based on an understanding that you’ll pay the money or obligation back later.
What is a credit report?
Your credit report is all of the credit-related data a credit reporting company (CRC) has gathered about you from different sources.
What is a credit score?
Your credit score is used to assess your likelihood of defaulting on payments you owe (i.e., going 90 days or more without paying a debt obligation).
See Your Score Changing?
Don’t be alarmed! Your credit score should and will change. Because your score is based on a file that is frequently updated, it will vary over time. Also, many lenders utilize different credit models, leading to slightly different credit scores.
What Impacts My Credit Score?
Not all factors are created equal when it comes to your credit score. Some, such as payment history, are influential, while others are less important, like new accounts opened. While everyone’s credit profile is different, there are similarities in what lenders look for in a borrower’s history to make their lending decisions, listed below. Learn how credit scores are determined. Each is ranked from most important to least.
Payment History
Payment history is important to lenders. If you’ve missed even one payment, your credit score suffers, making it more difficult to open additional credit accounts or access additional funds through the accounts you already have. Do everything you can to stay current.
Total Credit Usage
Experts advise that to have credit scores considered “good” or “excellent,” you should use 30% or less of the total credit available to you. For example, if you have a credit card with a $1,000 limit, it’s best to not carry a balance on that card of more than $300.
Credit Mix & Experience
A credit mix that’s varied, such as a car loan, a credit card, and a mortgage, demonstrates to lenders that you’re able to responsibly manage different types of credit responsibly over time. Take steps to increase the types of credit you access.
Also, the longer you’ve had a credit account, the better—which is why it’s important to establish credit early in adulthood if possible.New Accounts Opened
Too many new accounts opened in a short amount of time can result in denial of credit. To protect and grow your credit score, it’s best to space out your applications for credit cards and other credit accounts.
Balance and Available Credit
Paying down credit balances and having a high amount of credit available demonstrates that you have financial flexibility. Whenever possible, pay down balances on your accounts.
Factors that affect credit
Not a Factor
What factors don’t count when VantageScore scores consumers?
Great question! We do not include race, color, religion, nationality, gender, marital status, age, salary, occupation, employer, employment history, where you live, or even your total assets, when determining your credit score.
Who Uses My Credit Score?
LENDERS
Lenders of all types pull credit scores to help them assess the likelihood that you will fall behind on the payment of a loan.
These institutions are likely to use your credit score as well as other information they have obtained directly from you, including your employment status and work history, how much you earn, and your planned down payment. In general, people with higher scores can get more credit at better rates.
DECISION-MAKERS
Landlords — When determining your ability to pay rent on an apartment and how much a security deposit will be required to sign the lease.
Mobile Phone Companies — When determining payment plans you are eligible for and whether or not a security deposit will be required.
Utility Companies — When determining whether or not to require a security deposit, and if so, how much of a deposit to require.