Credit Scores: Simplified.

Credit Scores: Simplified.


Are you looking to obtain financing for a new car, a new home, or to submit a rental application for that new apartment on campus? Credit needs vary from individual to individual because there are many different transactions that require the use of credit scores. In every transaction there is a consumer and a creditor. Your credit score gives the creditor some insight into your level of creditworthiness, which will help them determine the amount of credit you can obtain at a certain interest rate.

Credit Score Calculation

A credit score is calculated using many pieces of data off of your credit report. Generally, the five most important categories that are taken into account are:

  • Payment History – 35% of your score. Creditors want to make sure bills are paid on time.
    This is important because this give them a good indication on an individual’s repayments habits and level of financial responsibility.
  • Amounts Owed – This makes up 30% of your score. The remaining balance on the account divided by the credit limit is how credit utilization is calculated.
  • Length of Credit history – This makes up 15% of your score. Score calculation takes the age of your oldest account and the average age of all of your accounts into the computation.
  • New Credit – This makes up 10% of your score. They key here is to avoid opened a lot of new accounts in a short period of time as this shows financial distress.
  • Credit Mix – This make up 10% of your score. This account for the different types of accounts that you currently have open such as car loans, credit cards, mortgages, and student loans.



A FICO ® score is a credit scoring system developed by the Fair Isaac Corporation.   There are many versions of the FICO® score that are used in different industries. The differences between the versions are how much weight each category (mentioned in the previous section) carries in calculating that score. An individual’s FICO® score is the median of the scores reported by three bureaus; Experian, Equifax and Transunion. This means that only the middle score will be taken into account no matter how low or high the other two scores are. The range of scores varies depending on the reporting bureau but typically are between 350 to 850.

Each bureau reports different versions specific to the industry that is requesting the scores. For example, financing for a car requires the use of FICO® version 8 from all three bureaus. For mortgage lending purposes the FICO® score 2 is requested from Experian, FICO® score 5 is requested from Equifax and FICO® score 4 is requested from Transunion. The most widely used version is FICO® score 8 which is used in, but not limited to, credit card approvals. This explains why a credit score that was obtained from a credit card company or a score that is used when you purchase the car is not the same as when a Loan officer pulls your credit for Mortgage purposes.

Information Shown on a Credit Report

  • Identifying Information – This beginning portion of your report has your Name, Social Security Number and Date of Birth.
  • Credit Score Breakdown – This portion shows the three scores that were report by each bureau and highlights the median score.
  • Open Accounts/ Tradelines – This portion of the report shows all open account such as credit cards, car loans/leases, student loans, and mortgages.
  • Collection accounts – Collection accounts are shown on the report along with an account number and phone number for the entity that reported the account.
  • Public Records – This portion shows any foreclosures or bankruptcies that may have incurred in the past.

Some Helpful Tips For Improving your Credit Score

  • Make your payments on time – A late payment that is reported to the bureaus will have a negative impact on your score and will show up as a late payment on your credit report.
  • Don’t allow anyone pull your credit unless you are certain that you will be moving forward with the transaction. There is no need to have your credit score pulled just to get an indication of your score. There are others means to achieve that without a hard inquiry.
  • Keep Credit Card Balances low – The recommended amount of usage is 30%. This means, use only 30% of your credit card limit. This shows creditors that you are a responsible individual and.
  • If your score is low, don’t give up! – Just because you have a low credit score right now doesn’t mean you can’t do anything about it, seek help and counseling.
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