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Credit Scores Explained

What Is a Credit Score?


Your credit score is essentially a calculated number that banks and lenders use to determine your ability to repay debts. Many factors are taken into consideration when calculating your credit score, and there are three main bureaus (Equifax, TransUnion, and Experian) that track your score. Your credit score can be used by lenders or bankers to determine whether you qualify for any line of credit, interest rates, deposit amounts, length of repayment, and more aspects that determine the overall terms of your line of credit. It is very important to understand the factors that these bureaus look at when configuring your score so that you can start building an impressive credit score.


Typical Score Range:


  • Excellent: 750 and above
  • Good: 700 to 749
  • Fair: 650 to 699
  • Poor: 550 to 649
  • Bad: 550 and below



Credit Score Factors:


Payment History

Your payment history makes up about 35% of your credit score. Lenders and bankers use your credit score to determine the amount of risk they will be taking on if they offer you a line of credit. The largest part of that risk is whether or not you can be trusted to pay back your debts in a timely manner. The best way to start building a better credit score is to pay your bills on time.


Credit Utilization

Your credit utilization measures how much credit you have used compared to the overall amount of available credit. This ratio makes up about 30% of your credit score. You should aim to keep your credit utilization as low as you can, but not necessarily at 0%. Lenders and bankers want to know if you are responsible and financially stable. Therefore, your credit utilization will show them that you are using your lines of credit wisely. For example, if someone owes $30 on a credit card that has a $300 limit, they appear more responsible than someone who owes $200 on a credit card with a $300 limit.


Length of Credit History

This factor only makes up about 10% of your overall credit score, but it can definitely be used to boost your score if you use it to your advantage. Having an open account with a history of timely payments and no derogatory marks will only help you reach that excellent credit score. Again, lenders want to know if you can be trusted, so having an aged account will show them that you are accountable.


Credit Mix

The types of credit you take out make up another 10% of your credit score and include things like loans, mortgages, credit cards, and store accounts. The three major bureaus do consider the different lines of credit you have and your overall number of accounts so that lenders can judge whether you can be trusted to use a variety of accounts responsibly. Having a healthy credit mix can definitely help you build a good credit score so long as you are making all of your payments on time.


Hard Inquiries

Hard inquiries come from things like credit applications and make up about 10% of your overall credit score. The best way to avoid hurting your credit score in this regard is to avoid applying for any lines of credit you don’t truly need. The effects of a hard inquiry will stay on your credit report for up to two years. Additionally, once you obtain a hard inquiry there is nothing you can do to alleviate its effects.


What is not on your credit score:

  • Race
  • Religion
  • Sex
  • Ethnicity
  • Salary
  • Occupation
  • Use of Public Assistance
  • Age
  • Children
  • Any other information that is not found in your credit report


You can access your credit report for free on multiple platforms. The federal government allows you to have access to your official credit report from all three major credit bureaus once every 12 months at You can also use Credit Karma to track monthly updates on your credit score for free. Credit Karma shows you a breakdown of each of the listed factors, ways that you can improve your credit, and will recommended lines of credit for your personal needs. For more information about ways to improve your credit, call us at (901) 375-5513.

Posted by: Joseph Blossman on November 13, 2018
Posted in: Uncategorized