Credit Score Chart: The Key to Understanding Credit Scores

Fair, Isaac & Company compiles the information in the credit reports and calculates a score to determine your creditworthiness. These scores are known as your credit rating. The majority of consumer credit companies and mortgage lenders use the FICO scores. You can visit www.myfico.com to get your FICO score. Sometimes those scores will be provided on the credit report.

The higher the score, the more money you will save on consumer loans and mortgages. Banks offer better interest rates and payment terms to consumers with higher scores. The lower your credit score, the higher interest rates you will be charged on a loan. The difference between a high score and low score can mean thousands of dollars in a year’s payments. The score also determines whether you will even be offered a loan.

FICO scores are calculated according to the following information:



35% - Payment history. Whether you pay your bills on time or late, whether you have a bankruptcy or bill in collection.
30% - Total Debt. Your debt to income ratio is taken into account. If it’s too high, the score is lower.
15% - Length of your credit history. If your accounts are all very new, it’s a minus.
10% - New inquiries. If you have many recent new inquiries, your score will go down.
10% - Types of Accounts you have. If you borrow from finance companies or pay day advance companies, the score goes down.

Credit reports are becoming a critical part of our daily lives. They are not just tools to acquire consumer credit any more, and it is likely they’ll become even more important in the future.

That is why we should review them on an annual basis, and make sure they provide as positive view of us as possible.