The Law Office of
Heather A. Harwell, PLLC
Serving Wesley Chapel, New Tampa, Zephyrhills, Dade City, Land O' Lakes & Lutz
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What Determines
a Credit Score?
In this era of credit reliance, your credit score is extremely important. Many people do not realize that there are multiple credit scoring methods. Equifax and Experian use FICO, a system developed by Fair Isaac Corporation, as well as a new method, VantageScore. Transunion uses only VantageScore. Additionally, there are industry specific methods which use the same criteria as FICO but are tailored to the industry, such as automobile sales or issuance of bankcards. Your score can drop as low as 300 with FICO or VantageScore or 250 with industry specific scoring. Scores in the 500's and lower are considered poor. Your score can also rise as high as 850 with FICO or VantageScore and 900 with industry specific scoring. When you apply for credit, potential creditors may use one or all of these services to determine whether you are credit-worthy. In addition to the reporting services, a potential creditor may consider your income, your employment history and the number of addresses you have used within the preceeding few years.​FICO. Your FICO score is comprised of five categories - payment history, amounts owed, credit history length, amount of new credit and credit mix.
Payment History. Your FICO payment history comprises 35% of your FICO score. Payment history has proven to be the strongest predictor of future payment compliance. Obviously, the likelihood of future payment compliance tends to be a potential creditors most important priority. For this catagory, timeliness of your payments is considered. Although a single late payment will not greatly affect your score, creating a history of late payments will have a significant impact. Negative credit events like credit checks by potential creditors, judgments, liens, charge-offs, transfer of a delinquent account, repossession, foreclosure and bankruptcies figure into this portion of your score and will all have a signifcant negative impact. The affect will decrease as time passes without another negative credit event. Surprisingly, even if you make timely payments, if you are only making the minimum payments due, this will negatively impact your score.
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Credit Use. Credit use comprises 30% of your FICO score. If you are using a large portion of your revolving credit every month without substantial repayment, this will indicate that you may be overextended and will have difficulty paying new
debts. Alternatively, using some of your revolving credit on each accountthen paying the balance off every month will have a more positive affect than simply not using your revolving credit. Further, the more revolving accounts you have that are not being substantially reduced every month, the greater the negative impact on your score. Additionally, the overall types of credit you are using can impact your score. Creditors look favorably on you if you demonstrate an ability to maintain an installment loan such as a home mortgage or automobile loan as well a revolving debt without late payments. Finally, as you reduce the balance on your installment loans, you will see your score increase.
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Credit History. Your credit history constitutes 15% of your FICO score. Bottom line, the longer you have been reasonably using your credit, the better your score will be.
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Credit Mix. The mix of types of credit you are using forms 10% of your FICO credit score. There are two types of credit - revolving accounts and installment accounts. Revolving accounts include credit cards, gas cards, store cards and home equity lines of credit. Revolving accounts allow you to use credit up to a certain limit and pay toward the balance monthly with the expectation that you make at least a minimum payment. Installment accounts include automobile loans, mortgages and student loans where there is usually expectation of a monthly fixed payment toward the balance. Having at least one account of each type will improve your score.
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New Credit. The amount of new credit accounts affects 10% of your FICO score. Although more accounts and percentage of unused credit and ultimately increase your score, if you open several credit accounts within a recent short period of time, it may indicate that you are having financial problems and result in a denial of additional credit.
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VANTAGESCORE. Your VantageScore score is comprised of five categories - payment history, credit use, lenth and types of credit, amounts owed and recent credit applications.
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Payment History. Your VantageScore score also rates payment history as the most important consideration in calculating your score comprising 20% of your score.
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Credit Use. Credit use on your VantageScore report is slightly less influential than on your FICO report. Your VantageScore weights credit use at 20%. Credit use is based upon the amount of credit you are using compared to the total amount of credit you have. A greater use ratio will negatively impact your score.
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Credit Depth. Depth of credit comprises 20% to 21% of your VantageScore credit score. This portion of your score evaluates the length of your credit history and the types of accounts you have. The longer you maintain a history of responsible credit use and the more diverse your accounts are, the better your score will be.
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​Amounts Owed. The total balance owed on all your accounts constitutes 6% to 11% of your total VantageScore credit score.
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Recent Credit. Your recent credit applications and the resulting creditor inquiries make up 5% to 11% of your score. New applications will lower your score.
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Available Credit. Comprising 2% of your score, available credit is slightly different then credit use. It rates only the total amount of credit available whereas credit use rates the percentage of credit use verses credit available.
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​Public Records. Although public records reflecting things like liens and bankruptcies is not considered in the newest version of VantageScore, the older version of VantageScore, applying no particular percentage to the consideration.
Free Credit Report. You may obtain a free credit report from Equifax, Transunion and Experian once every year at AnnualCreditReport.com. Some people will spread their requests throughout the year so they can download one of the credit reports every 3 or 4 months.
The information provided in this website and blog page is intended for informational purposes and should not be construed as legal advice. You should never rely solely on websites for legal information or advice and contact a licensed attorney with any questions you may have.