A Brief Guide to Credit Scores

How much do you know about credit scores, how they’re calculated, and what they’re used for? Ramp up your knowledge with this helpful guide so you know what to expect next time you apply for credit.

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What’s the Score?

Your credit score is a part of the package of information lenders use to decide whether or not they will lend you money or extend credit. Other factors include things like your employment history and income and their own internal scoring systems. There are two primary credit scoring models you need to know about: FICO® and VantageScore. Each may be used to determine your creditworthiness: that is, how likely you are to repay your loan. Your score can influence your interest rate, length of loan, and even how much you can borrow.

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Calculating Scores

Both scores use a range of 300-850. A higher score indicates to lenders that you are fiscally responsible and the risk of lending to you is low.

Influences on your FICO Score:

FICO Score Ranges:

FICO Fast Facts:

• Is not influenced by current interest rates on loans you already have.

• 45-day window for rate shopping before credit is affected.

• Six months of credit history required to establish a FICO score.

• Has a separate Auto Score specifically for car loans.

Influences on your VantageScore:

VantageScore Ranges:

VantageScore Fast Facts:

• Does not factor in paid-off collections when calculating your score.

• Late mortgage payments are weighted more than other late payments.

• 14-day window for rate shopping before credit is affected.

• Can produce a score just a month or so after credit line is opened.

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What Will My Lender Use?

Most mortgage lenders rely on FICO scores, which have long been the industry standard. However, VantageScore has been gaining traction and is increasingly recognized across the lending landscape.

Because practices can vary, the best approach is to ask your lender which scoring model they use. Knowing this upfront helps you prepare and feel confident when applying for a mortgage.

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Quick Credit Tips

Pay on time, every time. Even if you’re only making the bare minimum payment (but try to pay more!), meeting that debt obligation is key to building good credit.

Pay off bills with the highest interest first. You’ll reduce the amount you pay in interest over time, saving you money in the long run.

Or, conversely, pay off the smallest bills first. This is the theory behind Dave Ramsey’s Debt Snowball Plan: You’ll see results quickly, and stay motivated.

Put “bonus” funds toward paying down debt. That includes a bonus from work, a tax refund, or any other lump-sum payment you receive. (But only if you have a savings cushion built up first!)