Understanding how credit scores are calculated is essential for managing your financial health and securing loans, mortgages, and lines of credit. These scores are derived from multiple elements in your credit report, encompassing payment history, credit history duration, types of credit used, and negative marks. To navigate this process successfully, let’s delve deeper into the components that collectively determine your credit score.

FICO® Credit Scoring Model

• Payment History (35%): Assessing on-time payments and financial responsibility.
• Amounts Owed (30%): Total balances vs. credit limit – a crucial factor for lenders.
• Length of Credit History (15%): Older accounts build a strong credit foundation.
• New Credit (10%): Evaluate recent credit openings for financial stability.
• Credit Mix (10%): Diversify credit types for a well-rounded profile.

FICO vs. VantageScore Models

• FICO Score: The industry standard with five key factors.
• VantageScore: Considers six factors, including available credit.

Negative Factors Impacting Your Credit Score

• Late or Missed Payments: Temporary drops for up to 7 years.
• Accounts in Collections: Lingering impact for 7 years.
• Bankruptcy: Stays on your report for up to 10 years.
• Account Charge-Offs: Lasting for up to 7 years.
• Maxed Out Credit Cards: Affect your score negatively.
• Closed Credit Cards: Reduces your credit limit and score.
• Multiple New Credit Applications: Generates temporary dips.
• Home Foreclosure and Loan Defaults: Impacts last up to 7 years.

Strategies for Credit Score Improvement

• Obtain a Copy of Your Credit Report: Start by reviewing your credit report for errors or signs of fraud.
• Dispute Credit Report Errors: Challenge inaccuracies for a score boost.
• Consult a Credit Counselor or Repair Company: Seek professional help.
• Settle Accounts in Collections: Clear negative marks.
• Inquire About Financial Hardship Programs: Explore available options.

Knowing how credit scores are calculated is crucial for your financial well-being. If your credit score doesn’t meet your goals, there are solutions available. Begin by obtaining a copy of your credit report, educating yourself about the factors influencing your score, and exploring online resources or seeking guidance from a credit repair specialist for personalized assistance.

If you ever need expert assistance or guidance on your credit journey, don’t hesitate to reach out to the Nerds! Additionally, stay updated with the latest tips and information by following us on Facebook, Instagram and Tiktok!