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What is a Credit Score?

Credit Scoring Models

So how is your credit score determined? FICO and VantageScore use slightly different scoring models.

The FICO score is the most widely used by creditors. The FICO score ranges from 300 to 850. The higher your score, the better your credit rating. Your FICO score is made up of five components:

FICO Score components
  1. Payment History (35% of score)
    This section includes payments made on time as well as the number of late payments (including how many late payments you have and the dollar amount of the late payments). Recent activity has a larger impact on your score than older activity.
  2. Amounts Owed (30% of score)
    This section includes the total amount you owe, the amount you owe by account type (such as revolving, installment, or mortgage), the number of accounts on which you're carrying a balance, and the proportion of the available credit lines used. To receive a high number in this category, you should have a low balance owed in relation to the amount of credit available. For installment credit, your proportion of balance is defined as the amount remaining on the loan in relation to the original amount of the loan. For revolving credit, your proportion of balance is defined as the amount you currently owe in relation to your credit limit.
  3. Length of Credit History (15% of score)
    A longer credit history increases your credit score. This is both the age of your active accounts and the length of your credit history across all accounts.
  4. Variety of Accounts (10% of score)
    In an ideal situation you will use a mix of different types of credit. If you carry a high-percentage of risky types of credit, such as revolving credit (credit cards) or finance-company loans, your score will be lower than if you debt is from more secure credit, such as car loans or mortgage loans.
  5. New Credit (10% of score)
    This category takes into account the types and number of new (and increased) credit lines, which includes applications for credit. The more new, requested, or increased credit you have, the lower your score in this category. Why? Fair Isaac assumes that if you apply for more credit (and especially for several new accounts at the same time) you may be living beyond your means and will be unable to afford to pay off the debt.

On March 14, 2006, the "big-three" credit bureaus created another model, VantageScore, for use as a common scoring product method, although they each still offer their own proprietary scoring methods as well. The VantageScore numerical range is 501 to 990.

Your VantageScore is determined by six components:

Vantage Score components
  1. Payment History (32% of score)
    As with the FICO score, your payment history is the most significant element in determining your VantageScore credit score.
  2. Utilization (23% of score)
    This is the percentage of your available credit that you have used. Using a smaller proportion of your available credit has a positive affect on your credit rating.
  3. Increasing Balances (15% of score)
    Recent increases in your balances indicates greater risk and lowers your score.
  4. Depth of Credit (13% of score)
    This means how long you've had credit, along with the types of credit you hold.
  5. Recent Credit (10% of score)
    This is the number of credit accounts you have recently opened and new inquiries you have made. Initially, when new credit appears on your record it will lower your score. Over time, if you keep new accounts in good standing, they can actually help increase your credit score, especially if you keep your utilization rate low.
  6. Available Credit (7% of score)
    This is the amount of credit available on all your accounts. The more credit available (and the less used) the higher your credit score.
> What Is a Good Credit Score?