Your credit score is more important than you think. It plays a key role in your finances, influencing everything from loan approvals to interest rates. Understanding how credit scores work and what affects them can give you better control over your financial future.

Types of Credit Scores

There are two main types of credit scores most people recognize:

FICO Score

• Created by Fair Isaac Corporation (FICO), this is the most commonly used credit score by lenders.
• FICO scores can be customized for specific industries or loan types, making them versatile for different credit decisions.

VantageScore

• Developed in 2006 by the three major credit bureaus: Experian, TransUnion, and Equifax.
• It was designed as an alternative to FICO and has become a key player in the credit scoring industry.

In addition to FICO and VantageScore, some large companies use alternative or in-house scoring models, combining traditional credit scores with their own assessments.

Understanding Your Credit Score

If you plan to make a significant purchase, like a car or home, checking your credit report is a good idea. Doing so helps you verify that the information is accurate and gives you insight into your financial standing before applying for a loan.

How to Access Your Credit Report:

• You're entitled to one free annual credit report from each major credit bureau.
• Visit AnnualCreditReport.com, authorized by federal law, to get your free reports.
• To monitor your credit throughout the year, request a report from a different bureau every few months.

What Your Credit Score Reveals:

To the average person, a credit score is just a number. But to lenders, it provides valuable insights, including:

• Payment History: Are your payments on time? Consistent, timely payments boost your score.
• Account Age: Older accounts show stability. Keep older accounts open whenever possible.
• Credit Utilization: This measures how much credit you use compared to your total credit limit. Aim to keep this below 30%.

What Affects Your Credit Score?

Everyday financial actions can impact your credit score, sometimes in surprising ways. Here are the main factors that influence it:

Negative Factors:

• Late Payments: Missing due dates can significantly lower your score.
• High Credit Utilization: Using more than 30% of your available credit is a red flag for lenders.
• Too Much Debt: A high debt-to-income ratio makes you look risky to lenders.
• Default History: Defaults on loans or accounts hurt your score for years.
• Excessive Credit Inquiries: Applying for multiple credit accounts over a short period lowers your score temporarily.

Positive Actions to Improve Your Score:

• Pay all bills on time.
• Keep credit card balances low.
• Avoid opening too many new accounts at once.
• Work to pay down existing debt.

Final Thoughts

• Two Major Credit Scores: FICO and VantageScore are the most widely used, but other scoring models exist.
• Core Factors: Payment history, credit utilization, account age, and total debt significantly impact your score.
• Check Regularly: Reviewing your credit report ensures accuracy and helps you catch errors that might lower your score.

By understanding your credit score and taking steps to improve it, you can enjoy better loan approvals, lower interest rates, and more financial opportunities.