An Introduction to Credit Scores

 An Introduction to Credit Scores

The significance of one's credit rating in one's daily life is well-known. The credit score breakdown, which details the components of a credit score, may be more confusing to understand. The Fair Isaac Corporation's FICO model, which has been around since the 1980s, is the most widely used scoring system among lenders and banks. Fair Isaac collaborated with the three major credit reporting agencies—TransUnion, Experian, and Equifax—to develop the FICO model.


Any figure between 300 and 850 might be your credit score. Credit scores in the 690s are considered good for the average American. Even while this score is good enough to receive a loan, it won't earn you the greatest interest rate possible.

A breakdown of the credit score is as follows:

Past Transactions. Your payment history accounts for 35% of your total score. A number of factors, including late or missed payments, amounts sent to collection agencies, bankruptcies, tax liens, etc., contribute to this score. Never forget that a late payment is better than none at all, and that a mortgage payment in particular can have a far more devastating effect on your credit score than any other type of payment, including those for utilities and credit cards.

Still owing money. A third of your score is based on your total debt as a percentage of your available credit that has not been used. Be wary of charging more than you can afford. It is advised that you utilize only 25% to 50% of the allotted credit. Getting additional lines of credit and then not using them is one approach to even things out. But, it is not a good idea to apply for multiple credit cards simultaneously, as this would reflect poorly on you. If your credit is fine, you should apply for a respectable credit card once every six months and put the money aside for emergencies.


Credit history: Your credit history accounts for fifteen percent of your credit score. This makes perfect sense. Your total score will be higher if your credit history is longer. The accuracy of your creditworthiness prediction improves as more information about your past is available.

Credit types: If you manage your various forms of credit correctly, having a variety of credit might actually raise your score. Ten percent of the total score is based on this.

Excessive activity: Creating a flurry of new credit accounts will have a temporary negative impact on your score, as previously stated. It's worth noting that excessive "hard inquiries" into your status can lead to a decrease in your score. Having a lender carry out what is known as a "hard inquiry" is something you have chosen to do. It won't hurt your score if you ask yourself how you did.

The first step in raising your credit score is learning how it is calculated. 

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