A credit score is a numerical representation of your credit profile. It makes it easier for lenders to systematically make loan decisions. Credit scores are a reflection of how you’ve handled credit in the past and are used to determine your potential credit relationship in the future.
For the most common credit scores, the information that goes into your score comes from your file at the credit reporting companies, which is why it is so important to review these files to ensure they are accurate.
Credit Score Ranges
The most commonly used credit score is known as FICO. The name comes from the Fair Isaac Corporation, which developed the scoring model. They are used to predict the likelihood that a person will pay his or her debts. The scores use only information from credit reports.
- FICO credit score range: 300 – 850.
- VantageScore credit score range (version 2.0 and earlier): 501 – 990
- VantageScore credit score range (version 3.0 or later): 300-850
Common factors that make up a typical credit score
- Your bill-paying history
- The number of accounts you have and what kind
- How much of your available credit you are using
- How long you have had your accounts open
- Your recent credit activity
- Whether you have had a debt collection, foreclosure, or bankruptcy, and how old these are
By law, the calculation of your credit score cannot use or take into account factors such as race or color, religion, gender, national origin, or marital status.
FICO's credit score factors
The exact information used by credit scoring providers (such as FICO) to calculate your credit score is top secret but there is some publicly available information. For instance, FICO has shared that 5 factors make up your credit score:
- Payment History (35%) – the largest percentage because paying on time is important for lenders to know.
- Amounts Owed (30%) – also known as capacity. It’s based on the amount of outstanding credit you have against your available credit limits.
- Length of Credit History (15%) – how long you’ve had credit plays a role on your credit score. Longer credit histories are viewed positively. Adding new accounts can lower your overall credit history length.
- Types of Credit in Use (10%) – this is based on the mixture of credit such as credit cards, personal loans, mortgages, auto loans, etc. A good variety is generally accepted as strengthening credit scores.
- Account Inquiries (10%) – applying for credit impacts your credit score and having too many recent loan applications (or inquiries) can have a major negative impact. Apply for credit when absolutely necessary.