Confused About Credit Scores? Here’s What You Need to Know.

Your credit score is an important part of your financial health. But, how much do you really know about what goes into it, and how it’s used? 

Most commonly known are FICO scores, from the Fair Isaac Corporation (FICO), which are generated from three credit bureaus — Experian, TransUnion, and Equifax. Each credit bureau agency is constantly evaluating credit scores independently, so you could see different credit scores between each credit reporting agency — even if your score was requested at the same time. FICO scores generally range from 300-850, the higher your score, the more likely you are to have a better interest rate.

Whether it’s FICO, or another score provider — it’s important to keep in mind that the exact model used can even vary. So, don’t fret over minor variances in your score across lenders. Regardless of the provider, or model, scores are viewed in ranges, so minor variances aren’t likely to significantly impact how your ‘creditworthiness’ is viewed overall. And, most reputable lenders, such as CEFCU, look at more than just your credit score to determine how much loan you can afford — such as your income, time on job, or the value of the vehicle you are purchasing. 

So, how exactly is your credit score determined? By using these five different pieces of credit data:

  1. Payment history: Records your past payments on credit accounts. Past due status will be listed in 30-day increments such as 30, 60, or 90 days. The presence of adverse public records, including bankruptcy, judgments, suits, and liens will also be listed.
  2. Credit usage: The amount of credit you owe and your credit utilization ratio (the balance of revolving accounts, like credit cards, divided by the account limit, such as your credit card limit).
    • It is recommended to only use 20-30% of your available credit limit to maintain a healthy credit utilization ratio on revolving accounts. So, if you have two credit cards, each with a $1,000 credit line, aim to keep any revolving balance between both accounts at no more than $400-600.
  3. Length of credit history: The average age of all your credit accounts, including the age of your newest and oldest accounts.
    • Tip: you may want to keep open your oldest line of credit, even if you’re no longer using it. And, when applying for new credit, make sure you need it — opening new lines of credit can have a negative impact on your average length of credit history.
  4. Credit mix: Factors in the types of credit on your report, like mortgage, revolving, and installment loans.
    • A good mix of different types of credit can show a lender that you’re responsible in paying for different loans/lines.
  5. Recent activity: Considers whether you have applied for or opened new credit accounts recently. Applying for multiple new loans in a short time frame, could adversely affect your score.
    • Understand the difference between soft and hard inquiries — and if you’re not sure which is being used, ask.

Some items that do not affect your credit score are your age, income, employment status, bank balances, and marital status.

Difference between soft and hard inquiry of credit.

Soft inquiry:

  • Only provides a snapshot of your credit bureau, such as your score alone.
  • Does not negatively impact your credit score.

Hard inquiry:

  • Used for loan applications, such as auto loans, mortgages, or credit cards.
  • Provides full detail of your credit bureau, such as loan/line open date, payment history, and remaining balance.
  • Could negatively impact your credit score, if too many hard inquiries are conducted within a short period of time.

Important information to know about your credit accounts and their effect on your credit score:

  • Before completing an application for new credit be sure to research the financial institution, credit benefits, rates, terms, and fees before applying.
  • Remember the difference between hard and soft credit inquiries. A hard inquiry happens when you apply for new credit and will stay on your report for two years. A soft inquiry is when your credit report is pulled but you haven't applied for credit. Soft credit inquiries never damage your score.
  • Negative and positive credit records remain on your credit report for differing lengths of time. Negative information generally stays on your report for seven years, while positive information can remain indefinitely. Also, not all creditors supply information to reporting agencies. You can request to add the information to future reports.

One free copy from each bureau is available every 12 months. You can view your credit reports at

Have a credit score that needs improvement? Take these steps to manage your credit responsibly over time and improve your credit rating.

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