What Is A Credit Score?

A credit score is a three-digit number that acts as a numeric interpretation of a consumer’s risk level. 

The intended purpose of those three powerful little numbers is actually to minimize the risk incurred by lenders.

Every time you apply for credit, such as a home mortgage or a new credit card, your lender will use your credit score to determine whether or not to approve you for that credit.

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Two companies, FICO score and VantageScore, dominate credit scoring. They pull from the same data and both use a credit score range of 300-850.

If you have an excellent FICO Score, your VantageScore is likely to be high as well.

Your credit score can vary from month to month even though you have the same number of loans, pay the same bills, and stay on top of your credit cards.

How Is My Credit Score Determined?

While other credit-scoring systems exist, the credit score you order in most cases will be your FICO score.

Every credit bureau may include different info in their calculations, so your FICO score can vary depending on the specific credit bureau.

The only way to be in control of your own creditworthiness is to understand how that risk is calculated.

The list of factors used in calculating credit scores is somewhat lengthy but fairly straightforward. FICO uses 5 key factors while VantageScore uses 6.

While the exact formula used to determine your FICO score is protected, FICO divulges some basic categories that affect your score:

Payment history (35 percent) – Your payment history tells lenders how well you pay back any debt. Late payments on bills such as auto loans, credit cards or mortgages will cause your score to drop, while on-time payments will improve it. Does making minimum payment affect credit?

Credit balances and utilization (30 percent) – This category is a little trickier and often the most misunderstood credit score component. If you owe a big percentage of your available credit on a credit card, lenders may view you as a potential risk of late payment or nonpayment. A history of small balances and never missing payments will improve your credit score.

Much less weight goes to the next 3 categories, but they’re still worth watching:

Length of your credit history (15 percent) – The length of time your accounts have been open matters. The cardinal rule is to never close your old accounts, no matter how little you use them or how bad the terms might be. If you close your oldest account, your next oldest account becomes the reigning benchmark. Credit reporting agencies only consider the average age of any remaining accounts. The duration since account activity also weighs into this equation.

New credit applications and approvals (10 percent) – This credit score component looks at how many new credit accounts you’ve opened in a short period. Hard credit inquiries can hurt your score, especially if several happen within a short time frame. These inquiries occur when you apply for a credit card or loan.

Existing mix of credit accounts (10 percent) – Also coming in at 10 percent, this part of your score looks at your mix of revolving, installment, consumer finance and mortgages. Handling different types of credit will help you improve your score. Lenders like to see that you can reliably handle various financial obligations.

Which Part Of My Credit Score Is Most Important?

Percentages are attached to each category can help you determine which areas are most important to your score.

Your payment history, which takes the lion’s share of your score, is probably the most complex factor of the credit score formula since it contains several variables, such as:

• On-time payments
• Delinquencies and collection items
• The severity of delinquency (how long past due the debt is)
• Public records (foreclosures, suits, bankruptcies, liens, judgments, wage attachments, etc.)
• Amount past due on delinquent accounts or collection items

What’s A Good Credit Score

Credit scores of 670 or above are considered good.

Having a good credit score can help you do everything – speeding up credit approvals, lowering your interest rates, reducing deposits required by utilities, getting approved for an apartment, lowering your insurance premiums, getting better credit card, auto loan and mortgage offers, etc.

Borrowers with excellent scores (above 800) often have many options, including the ability to qualify for 0 percent financing on cars and for credit cards with 0 percent introductory interest rates.

• Poor: 300 – 579
• Fair: 580 – 669
• Good: 670 – 739
• Very Good: 740 – 799
• Excellent: 800 – 850

How To Improve Your Credit Score

If your score is not where you want it to be, you can improve it by:

• Staying current on your bills
• Keeping credit card balances below 30 percent of their limits
• Increasing your credit limit
• Spacing out credit applications
• Having a mix of revolving, installment, and mortgage loans
• Keeping older credit cards open to protect the average age of your accounts
• Checking your credit report for errors and reporting them
• Ensuring your creditors know your new address if you relocate

At Americor, we understand the unique financial challenges people are facing today.

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a FREE consultation call with one of our certified Debt Consultants, who can provide personalized debt relief advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!