There are four predominant scoring models that are used in the financial industry today to determine your creditworthiness – FICO, VantageScore, TransUnion’s True Credit and Experian PLUS.
Each scoring model has differing weights and unique scoring. You’ll find a different score identified by each that is considered to be a good credit score.
A good credit score will set you up for better interest rates for credit, loans and credit cards. The higher your credit score, the lower your interest rates.
Below you’ll find each scoring model broken down by name, scoring range, good credit score and scoring weights where information as available:
* FICO (Fair Isaac Corporation) – 300 to 850.
* Good credit score = 680 and above.
* 35% – timeliness of payments (only includes payments 30+ days past due).
* 30% – balances versus credit limit ($10,000 available credit with $2,000 debt = 20% debt to credit ratio).
* 15% – time-span of credit history.
* 10% – different types of credit reported (mortgage, revolving credit, installment loans).
* 10% – recent applications for credit and amount of credit recently acquired.
* VantageScore (joint venture of TransUnion, Equifax and Experian) – 501 to 990.
Grading System –
A: 901–990
B: 801–900
C: 701–800
D: 601–700
F: 501–600
* Good credit score = C: 701 and above.
* 32% – timeliness of payments.
* 23% – balances versus credit limit.
* 15% – total amount owed.
* 13% – time-span of credit history and different types of credit acquired.
* 10% – recent applications for credit and amount of credit recently obtained.
* 7% –amount of available credit on each of your credit cards or open credit accounts.
* Experian’s PLUS – 330 to 830.
* Good credit score = TBD.
Experian’s PLUS customer support group, Credit Expert, states that you will not know the range of what is considered “good” unless you purchase their product and are provided the actual score – they note that they do not have visibility to it in the call center.
* Inquiries to your credit report.
* Different types of credit reported (mortgage, revolving credit, installment loans).
* Timeliness of payments and how frequently you were late.
* Balances versus credit limit.
* TransUnion’s TrueCredit – 300 to 850.
* Good credit score = 650 and above.
* Length of credit history.
* Balances versus credit limit.
* Good balance between credit card and loan accounts
* Delinquencies, judgments, collection accounts, too many inquiries.
How Do I Improve My Score?
One habit you will want to get into, if you have not already, is to obtain a free copy annually from each of the major credit reporting agencies. Due to the Fair and Accurate Credit Transactions Act (FACTA), you are able to request a free credit report from each major credit reporting agency every twelve months. You might want to get into the habit of requesting one from a different agency every four months. That way you can keep a perpetual watch over your credit reporting.
how to get a better credit score
By monitoring your credit reports, you’ll be able to quickly correct inaccuracies and swiftly address any negative marks that end up on your credit reports. You’ll also know the areas you need to work on to increase your credit score.
There are general rules you can follow to increase your overall credit score. When you begin to reduce the noted accounts, make sure you start with the most recent and work your way backwards. This is very important to note, since older negative reporting does not impact your credit score as significantly as more recent negative reporting.
* Settle or pay off your collection accounts.
* Catch up all past due accounts.
* Settle or pay off your charged off accounts.
* Negotiate a settlement or pay off liens.
* Catch up late payments and keep payments current.
* Keep at least one older credit card account open and active.
* Lower your balance to available credit on your credit cards to a maximum of 50% on each.
* Become an authorized user on credit card accounts.
Here are some specific, fairly quick actions you can initiate that will help you raise your credit score in a relatively short amount of time. Note the following:
* Keep in mind that lenders make their money by charging interest – they want to see that you’ve maintained balances over a period of time and made payments on time.
* Removing negative items will increase your credit score.
* Paying off your accounts every month does not benefit or take away from your credit score – neutral impact to your credit score.
* Debt to credit ratio on your unsecured and revolving accounts is the key to improving or raising your credit score – will improve your credit score faster than paying off debt.
* Want to reduce debt to credit ratio? Get a couple of subprime merchandise cards that report to the major credit bureaus. They are the ones that tout that there is no credit check and that everyone is approved – purchase online or through their catalog. There are jewelry stores, department stores and other retailers who enable you to get approval for their subprime merchandise cards regardless of your credit score. This is the one of the most effective tools you can use to raise your credit score. It increases your credit limit and decreases your debt to credit ratio. Remember, you must obtain cards that report to the major credit agencies.
* You must show a well-rounded credit profile – e.g., mortgage, credit cards, equipment lease and auto loan.
FAQ: How do I check my Free Credit Report?
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.
