Credit Monitoring Tools

What Is In Your Credit Score?

It is useful to look at your credit score as your financial Body Mass Index (BMI). Your BMI is a screening tool doctors use to determine whether your weight is a health risk. Your credit score is a financial screening tool that helps lenders estimate how likely you are to repay your debts. But also like your BMI, your credit score is not set in stone. You can improve it by making smart financial choices and dropping bad habits.

Credit Scores Types

A common myth is that there is a single credit score. Another variation on this myth is that there’s one main credit score and that the other ones aren’t really that important. To illustrate the variety of credit scores available, three common and well-known credit scores on the market are VantageScore, PLUS score and FICO score.

  • FICO, short for Fair Isaac Corporation, is the leading provider of credit scores, but it offers a wide variety of credit score calculations, such as BEACON, FICO Risk Score, Classic, and industry-specific scores for auto lenders and credit card companies.
  • VantageScore was developed by the three major credit reporting agencies. The top banks, credit card companies and auto lenders use it as a basis for making billions of lending decisions every year.
  • PLUS is a user-friendly score developed by Experian, one of the three main credit reporting agency. Although PLUS is not used by lenders, it does give a good overall view of how lenders view your credit worthiness.

How Is Your Credit Score Calculated?

The algorithms used to generate credit scores are highly valuable intellectual properties that require huge investments and countless hours of research to develop. Understandably, credit analysis companies zealously protect the details of these algorithms and do not share them with the public. However, the basic factors that determine credit score calculations are similar. These are payment history, types of credit, amounts owed, length of credit history and new credit.

Payment History

… is the most influential factor when calculating your credit score. It is determined by your track record when paying for bills. Paying your credit accounts fully and on time will help your credit score. On the other hand, past bankruptcies, foreclosures, liens and judgments will lower it. Approximately 35% of your FICO score, and 32% of your VantageScore, is based on your payment history.

Amounts owed

… refers to how much debt you currently have in relation to your available credit. This category will determine 30% of your FICO score. It takes into account both how much you owe and how much credit you still have available. VantageScore divides this category into two additional categories: available credit and utilization, which are responsible for 7% and 23%, respectively, of your VantageScore.

Length of credit history and types of credit

… is determined by how long you have had your credit accounts for and how many accounts you have open. It looks into the age of your oldest account, your newest account, and the average age of all your accounts. All things being equal, a longer credit history will increase your credit score. FICO’s credit score divides this category into two separate categories. Length of credit history and types of credit makes up 25% (15% and 10% each) of your FICO score and 13% of your VantageScore.

New credit

… is how many newly opened accounts you own and how many recent credit inquiries are in your file. A credit inquiry is added to your file every time you request a credit card or apply for a loan. Notice that “soft” inquiries – those initiated by lenders to offer you pre-approved credit – do not affect your credit score.


Your credit score has a huge effect on your finances. It will determine whether you qualify for credit, what interest you pay on loans and credit cards, and whether property owners approve your lease applications. If you understand how your credit score breaks down, the relative importance of each category and you act on this information, you can improve your credit score. This will help you get better credit offers, lower your interest rates and speed up credit approvals.