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A credit score is a three-digit, computer-generated, number based on your credit report. Credit scores summarize your credit rating by giving it a number. Lenders use the score combined with other information to determine your credit-worthiness.

Various factors are used to determine a credit score, including your payment history, how much of your credit you are using, and the like.

The higher your score, the easier and less expensive it will be for you to access credit. The ideal credit score is 800 or above. 720 and above is considered good.

Understanding the factors which make up a credit score can help figure out what you can do to improve your credit score. 

Credit scores, and the reports on which they are based, are easy to obtain. For instance, one way is to go to offsite link and enter the requested information (name, address, birth date, Social Security number.) If you are applying for a loan, it is advisable to get all three reports and scores and check them carefully. 

At offsite link you can get two measures of your credit score plus a report that tells you how you are doing in five areas that make up the score. The two measures are Fair, Isaac & Company, or FICO, mode (pronounced Fie-ko) and VantageScore. FICO is the measure used by most lenders. Scores are in such a manner that each bureau's score should be roughly similar. In addition, lenders use other company scoring models, such as "application scores" and "custom scoring models." These lenders will combine your FICO or VantageScore with your application information to get a customized, composite score.

Your "FICO" score has a different name when generated by each of the following three major credit bureaus: Equifax, calls your score a "Beacon" rating, Experian uses the words:  "Experian/Fair, Isaac Risk Model", and TransUnion calls your credit score the "Empirica".

Lenders will view a score between 700 and 750 as an average risk. Scores below 700 may cause lenders to look more closely at your file. Scores over 800 are excellent. If your score is below 700, you may be charged a higher interest rate for credit or have to make a higher down payment on a loan. However, most lenders will use more than just your credit score in deciding whether or not to loan you money. Other factors can include:your income, the number or years you have lived in a residence, and how long you've been in one job.

Note that the individual credit score that you see as a consumer and the one that decision makers use is sometimes different. Lenders will look at the scores from the three credit bureaus, and will usually take the middle score regardless of which credit bureau created it. For example if your scores are 779, 780 and 802, lenders would generally use 780. Lenders generally use their own complicated formula with the credit score included along with other factors.

Beware of "free" credit score offers. They frequently come from thieves.If you want to check a particulare service, find its address through a search engine and type it in yourself. 

See the following sections for additional information:

It is a myth to think that working with a credit counseling agency will be reported to the credit bureaus. Only taking actions that re recommended by a counselor can affect your credit score. For instance, making partial payments.

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How Can I Find Out My Credit Score?

There are a variety of credit scores. However, most lenders use the FICO score.

You can get a free credit score through the following sites. Theonly cost of seeingyour score is having to receive promotional emails for products such as credit cards.

Alternatively, you can pay a minimal fee for your FICO score through offsite link. Click on "check my FICO score." Experian offsite link and TransUnion offsite link also offer credit reports with your credit score through their websites.

How Are Credit Scores Determined?

The exact formula by which credit scores are calculated has yet to be made public. However, according to Fair, Isaac, the developer of the most widely used credit-scoring system, credit scores are based on the following factors, each of which is discussed below:

  • Payment history.
  • Credit Use/ Your Usage Ratio.
  • Your debt/income ratio.
  • Length of Credit History.
  • New Credit.
  • Types of credit in use.

Payment history

Payment history is the most important part of your credit score. It accounts for approximately 35% of your credit score.

  • Accounts that are delinquent, in collection, have late-payments, or were charged-off, will all lower your score.
  • Making payments on time will raise your score.
  • Your most recent history will weigh more heavily than your earlier history, as will multiple incidents of late-payments.
  • Public record items, such as student loan judgments and federal tax liens, are also considered.

Credit use/Your Usage Ratio

Approximately 30% of your credit score is based on your use of credit. FICO considers:

  • The number of accounts on which you owe money.
  • Your average balances.
  • How much of the total credit you have available is being used. This is called your usage ratio. The other ratio lenders look at is your debt/income ratio.

Your usage ratio is the sum of all your credit balances divided by the sum of all of your credit limits. For example, suppose you have four cards with the following outstanding balances and credit limits:



Card A



Card B



Card C



Card D






Your use ratio equals $9,000 divided by $20,000, or 45%.

NOTE: It is advisable to at least use a credit card every six months, or even better, every three months. Credit card companies have been known to close accounts because of inactivity. The closure can hurt your credit score by increasing your usage ratio. 

DON'T ATTEMPT TO MANIPULATE YOUR CREDIT SCORE BY CLOSING ACCOUNTS. For example, if you paid off and then closed your Card A account, your usage ratio would actually increase to $8,000 divided by $10,000 = 80%! This could hurt your score more than having one fewer card would help. On the other hand, if you have more than four cards, cancel some.

Your Debt-Income Ratio

Your debt income ratio is the sum of your monthly payments relating to debt plus rent or mortgage payments, divided by your total monthly income before taxes.

For example: Keith has $4,500 per month income before taxes and the following regular monthly debts (which do not include utility and insurance bills, but do include student or other installment loans)

Rent $ 660
Auto loan 450
Credit Card 1 180
Credit Card 2 100
Credit Card 3 40
Credit Card 4 20
Total $1,450

Keith's debt-income ratio is 32.2% ($1,450 divided by $4,500).

Most lenders look for a ratio below 35% or, at most, 45%. Generally, the lower the
debt-income ratio the better the loan terms for the borrower.

Length of credit history

Accounts for 15% of total score.

  • To even have a score, you must have at least one account older than six months.
  • All else being equal, longer credit histories generally increase a credit score.

New Credit

Accounts for 10% of total score.

If you opened or attempted to open a lot of accounts in a short period of time, this can work against your credit score.

Each time you apply for new credit an entry is made in your credit report. Since statistics show that people anticipating financial troubles try to increase the amount of credit they have, this will generally lower your score. However, all inquiries for an auto loan made within a 14-day period, or a 30-day period for a mortgage, are usually treated as only one inquiry. This means it's OK to shop around for the best auto or home loan you can find -- as long as you do it in a short period of time.

Types of credit in use

10% of total score.

While having only credit cards is not necessarily a negative factor, having a mixture of credit (credit cards, consumer loans, and mortgages) may increase your score.

To read more about how credit scores are determined, visit Fair, Isaac's site at offsite link

How Can I Improve My Credit Score?

According to Money Magazine, the following techniques will help improve your credit score:

  • Pay bills on time, including rent which is now included in credit reports. Automating payments online can help. They can also help save time.
  • If you are considering taking out a loan such as for a mortgage or to buy a new car, and want to rate shop, do it within a two week period. Multiple requests about a new loan could lower your score. However, multiple requests during a short period of time do not count as the kind of multiple requests that hurt your score.
  • Do not let existing credit cards go dormant. A lack of activity lowers your score. Charge something small each month, and then pay it off.
  • Keep balances on credit cards and other revolving accounts below 50% of your credit limit. Lower is better.
  • Do not open unnecessary new accounts. (While new accounts can affect your credit score, they can also provide cash to pay medical or other expenses. From our perspective, for people who don't have a cash reserve, knowing you have access to credit when you need it outweighs the effect on your credit score).

You can find techniques to improve your particular score at offsite link. While the site is free, expect to see ads. Also note that the monitoring service is based only on TransUnion's database. It does not include the other credit bureaus which should also be monitored.

NOTE: If you haven't reviewed your credit report lately, this is a good time to do it. You can request a free copy from each of the three major credit-reporting agencies at offsite link, Tel.: 877.322.8228. Be sure to review the reports and ask for a correction of any incorrect entries.