The lowdown on credit scores

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A credit score summarizes the risk that a lender (credit union or bank) takes by lending money to an applicant (you). In theory, the higher the score, the lower the risk should be to the lender. There are several types of credit scoring companies, but FICO is the most widely used score.

FICO scores range from 300-850 points. The higher your credit score, the better. In fact, a higher score only qualifies you to borrow, it also can help you qualify for lower rates on credit cards, mortgages, auto loans, etc.

You receive a credit score when you have at least one credit account open for six months. Once a score has been established, you’ll start building credit history and your score will increase or decrease based on data from five categories: payment history, the length of credit, amounts owed, credit mix and new credit.

Payment history

Your score is based 35% on the payment history of your accounts. Your payment history includes the following accounts:

  • Credit cards: MasterCard, Discover, Visa, American Express and other credit cards you’re making payments on.
  • Retail accounts: Credit you’ve opened at places you shop, such as Macy’s, Dillard’s, etc.
  • Installment loans: Anything you make regular payments on, such as a vehicle or student loan.
  • Finance company accounts: Loans you’ve opened if your credit history is already poor.
  • Mortgages: If you’re currently making payments on a house.

While making your payments on time will definitely help your score, a late payment will not automatically kill your score or cause lasting damage.  For instance, paying a mortgage late only once is not going to affect your score that much. However, frequent late payments will classify you as a repeat offender by lenders which will severely damage your credit.  

Credit history length

The length of your credit history matters also. Your score is based 15% on whether you’ve been paying your bills on time.

Current debt

Also taken into consideration with 30% weight, is the amount you owe at the time your credit is checked. FICO looks at the amount you owe on all accounts, the amount owed on different types of accounts, the percentage of your available credit that you’re using and how many accounts have balances.

Mix of credit

Your FICO score is based 10% on the mix of your credit accounts. The key is to have credit cards, as well as other loans, and manage them responsibly. People with no credit cards are considered a higher risk than people who have managed their credit responsibly through loans solely backed by collateral, such as an auto loan. It’s important to note that a closed account will still show up on your credit history and be considered in your FICO score.        

New credit

The last 10% of your FICO score is influenced by any new credit. For instance, if you suddenly open several new accounts is a short period of time, your score may reflect that negatively depending on what type of credit you applied for.      

In fact, new credit is the source of one myth about FICO scores: that they drop anytime you have your credit checked to apply for new credit. For example, if you check your credit on a credit score site, which is called a soft inquiry, your credit will not be dinged. You can check it as many times as you’d like without consequence. However, if you have your credit checked by a lender to qualify for a loan, which is called a hard inquiry, then your credit will start to lower.

What is NOT in your score

None of the following items are reflected in your score: race, color, religion, national original, sex and marital status. Neither is your age, salary, occupation, employment history, where you live, an interest rate charged on a particular credit card, any items reported as child/family support obligations, any request that you have made to check your own credit, or whether or not you’re participating in a credit counseling of any kind.         

Improving your FICO score

Your credit score is only a snapshot in time. It can and will change from time to time. This is great news if your score is less than desirable because it means that you can improve your score. It will take time, but it is worth it.          

Start by requesting a free copy of your credit report from If you notice errors like incorrectly reported late payments, accounts you haven’t opened, or addresses you’ve never lived at, you should dispute these errors immediately.

Next, since making your payments on time is one of the biggest factors determining your scores, set up payment reminders or schedule reoccurring payments in Bill Pay.

Finally, focus on reducing the amount of debt you owe.

Taking the mystery out of the FICO score puts the power in your hands to improve your score. And we’re here to help! Explore credit score improvement tips.

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