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Do You Understand Your Credit Score?

It’s A Money Thing

The Basics:
A credit score is a number (usually between 350 and 800) that represents your creditworthiness. It’s a standardized measurement that financial institutions and credit card companies use to determine risk level when considering issuing you a loan or a credit card. Basically, it provides a snapshot of how likely you are to repay your debts on time.

The FICO Score:
The FICO score is the best known and most widely used credit score model in North America. It’s based on consumer credit files from the three national credit bureaus: Experian, Equifax, and TransUnion. Because a consumer’s credit file may contain different information at each of the bureaus, FICO scores can vary, depending on which bureau provides the information to generate the score.

When credit scores were first introduced, they were used primarily for lending money. Today though, credit scores have much more pull, and that’s why it’s important to understand how they’re calculated. Your monthly car payments, your ability to snag that sweet apartment, and even the hiring manager’s decision on that new job you applied for could all be influenced by your credit score.

Understanding Your Score:
A credit score of 720 or more is considered prime—this means you’re in good shape. Scores under 550 mean you could be turned down for a loan. Scores in the good-not-great range (550 to 720) might get you loan approval, but your interest rates will likely be higher than if you had a prime credit score.

Nobody likes the idea of paying more money for no reason, so it makes sense to adopt credit habits that will boost your overall score. Each credit bureau uses a slightly different calculation, but the basic breakdown goes something like this:

  • 35% is based on payment history. Making payments on time boosts your score.
  • 30% is based on capacity. This is one of the areas where the less you use of your total available credit, the better. If you get close to maxing out all your credit cards or lines of credit, it tanks your score—even if you’re making your payments on time.
  • 15% is based on length of credit. Good credit habits over a long period of time raise your score.
  • 10% is based on new credit. Opening new credit cards has a short-term negative effect on your score, so don’t open a whole bunch at once!
  • 10% is based on mix of credit. Having a combination of different types of credit (like revolving credit and installment loans) boosts this part of your score. Credit cards are considered revolving credit, and things like car loans and mortgages are installment loans.

Curious about your credit report?
You’re entitled to one free credit report per year from each of the major credit bureaus. However, due to the COVID-19 pandemic, the three credit bureaus are offering free weekly credit reports through April 2021. Request yours online by visiting

Don’t let your credit score be a mystery—make sure you’re on the right track!
Check out our recent article to help manage your credit score in hard times, or you can schedule an appointment with a Vantage Financial Coach for personal guidance with your credit and financial goals.