Credit Scores

What is a credit score?

Your credit score is a number that represents how good your credit is and is sourced from credit reports by credit bureaus such as Equifax, TransUnion and Experian. FICO uses credit reports from these companies and puts it through an algorithmn to generate your credit score. Banks and other companies use this score determine your creditworthiness and eligbility for financial product such as loans, mortagages, credit cards and others. If do not have a credit card, a loan or it hasn't been 6 months since you got either one then you will not have a credit score.

How can I check my credit score?

We recommend CreditKarma for checking and managing your credit score. It is completely free.

What is a good credit score?

A poor credit score would be in the range of 300-400. A good credit score ranges from 700-800. Anything above 750 will generally give you access to the best credit cards and loan rates.

Why should I care about my credit score?

A good credit score will give you access to lower rates on loans, mortgages and the best rewards credit cards. Landlords will sometimes check your credit score to determine if they should rent out an apartment to you.

What affects my credit score?

There are 5 main factors that affect your credit score. For the following list, account refers to an account that will affect your credit such as a credit card or a loan.

  1. Payment History - 35% of FICO score

    Naturally, the biggest factor affecting your credit is how well you have paid off your credit in the past. Paying your debts on time, including loans and credit card payments, will improve your credit score. Being late on payments or failing to make payments at all will lower your credit score. Paying utilities, rent and other bills does not affect your credit score because they are not considered lines of credit.

  2. Amounts Owed - 30% of FICO score

    The amounts owed portion of your credit score is composed of a few factors:

    • The ratio of your total credit line on credit cards to the amount you are spending on these cards. This should be kept under 30%.
    • The ratio of your original loan to the current balance left on the loan if you have any loans.
    • Number of accounts with balances
    • Total amount of money you owe in loans/credit cards

    This portion of your credit score is based only on the latest statement balances reported by banks or credit unions to the credit bureaus so your historical balances or average balances do not have an impact.

  3. Length of History - 15% of FICO score

    This portion of your credit score is also based on a few factors:

    • Age of your oldest account
    • Age of your newest account
    • Average age of your accounts

    Naturally, the length of time you have been using credit and managing it responsibly will be a factor in determining if you are credit worthy. Closed accounts will still contribute to your credit score until 10 years have passed.

  4. Diversity of Credit - 10% of FICO score

    Having different types of credit such as a loan and a credit card can improve your credit score. However, this is not a huge factor and you should definitely not take out a loan just to improve your credit score. Having only one type of credit and using it responsibly is enough to get a great credit score.

  5. Credit Inquiries - 10% of FICO score

    When you apply for a loan or sign up for a new credit card, something called a hard inquiry is made into your credit score to help the lender determine whether or not they should lend you money. Having many hard inquiries made against your credit in a short period of time can lower your credit score because trying to take on a lot of debt quickly is not a good sign to credit bureaus.

    Soft inquiries are when somebody checks your credit score but without the intent to lend you money. This includes checking your own credit score and does not affect your credit score at all.

    When you are shopping around for auto loans or mortgages, FICO will give you a grace period of 45 days. Any hard inquiries made during this time will only count as one inquiry because they want consumers to be able to shop around and find the best deal. This grace period does not apply when shopping around for credit cards.

How can I improve my credit score?

Look at the factors above for things that you should or should not be doing to improve your credit score. We suggest making all of your payments on time and keeping your debt burden low. If you have no credit history at all, we recommend getting a credit card and paying off your balances in full every month to build up your credit history.

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