Credit scores indicate your level of risk as a borrower. There are different credit scores that use unique formulas but they each will typically include factors such as: payment history and amounts owed.
What Is a Credit Score?
A credit score is a number that measures how risky you are as a borrower aka your credit worthiness. Financial institutions use this score to measure how much they can trust you. Credit scores are calculated by your past behavior with loans, credit cards, and other financial products. The higher your credit score, the lower risk you pose to lenders. Higher scores usually mean that you can expect better terms and lower rates when you borrow money.
You might not realize that you have hundreds of of credit scores, not just one. The FICO brand of credit scores used to be the only scoring system3. Established by Fair Isaac Corporation, FICO, remains the main type of credit score used by lenders to evaluate the credit ratings of applicants. When you hear about credit scores, it usually means the FICO Score. However, under the FICO brand there are different types of FICO Scores for different purposes. For example, when applying for a student loan or buying a house, the bank may use a different type of score than if you are applying for a credit card.
Most recently, the three major credit bureaus (TransUnion, Equifax, and Experian) have banded together to create another scoring system called VantageScore. This score relies on a slightly different set of weighted criteria than FICO Scores. If you receive a free credit score on your credit card statement, you may read the fine print to find out what scoring model and credit bureau data they are using.
Range of Credit Score
VantageScore 3.0, 4.0, and most FICO Scores range from 300-850. Older versions of VantageScore and some other types of FICO Scores have different numerical values.
What isn’t In Your Credit Score
Your FICO and VantageScore credit scores only consider your account information on your credit reports. They do not consider things like:
Your income (credit card companies will ask for this when you apply for new credit, though)
Your specific place of residence
Your age, race, gender, religion, marital status, or national origin
Child support/family support obligations
Whether or not you’re using credit counseling services
Criteria Used by FICO and VantageScore
FICO and VantageScore determine credit scores by evaluating similar factors that essentially boil down to the following:
Your payment history
Amounts owed, particularly versus your overall available credit
The age of your credit history
The types of credit accounts opened in your name (loans, credit cards, etc.)
New/recent applications for credit
It is generally safe to assume that the biggest factor that impacts your credit score is your payment history followed by amounts owed and utilization of credit.
Exactly how these factors impact a given score can vary, but it’s generally safe to assume that your payment history is the biggest consideration, and that’s nearly always followed by your amounts owed/utilization.
Here is an outline of a few of the more commonly used scoring formulas:
FICO Scoring Criteria
(Scores range from 300 to 850)
35% Payment history
30% Amounts owed
15% Length of credit history
10% New credit
10% Types of credit
VantageScore 3.0 Scoring Criteria
(Scores range from 300 to 850)
40% Payment history
20% Credit Utilization
11% Balances (total amount owed)
21% Depth of credit (length of credit history, types of credit)
5% Recent credit
3% Available credit
VantageScore 4.0 Scoring Criteria
(Scores range from 300 to 850)
41% Payment history
20% Credit Utilization
20% Age/Mix of Credit
11% New Credit
6% Balances
2% Available credit
Look for our next blog for the break down of these elements included in FICO Scores.