Credit Score Defined

Understanding how "credit score" is defined, how credit scores work, and how they’re calculated can help you establish a positive history and financial future. And, this is a critical element in processing approved car loans at JJ Best Banc & Company.

• A credit score is a number that summarizes your credit history.
• There are two dominant credit scoring models—FICO and VantageScore that are reported to Credit Bureaus—and many other lesser-used models.
• Because of variations in how scores are calculated and reported, you may have hundreds of credit scores.
• Understanding how scores are calculated can help you take action to establish a positive history and financial future.

What is a credit score?

A three-digit number that summarizes your credit history. Your credit score is very important. It predicts if you might fall behind in your credit card or loan payments during the next two years.¹ That’s why lenders sometimes call them risk scores.

Credit scores generally fall between 300 and 850. Given all the variations in scoring models and other factors, experts say you likely have hundreds of credit scores.

These three-digit numbers can heavily help decide whether you’re approved to borrow money, how much you’ll pay if you are approved, and even non-credit issues such as whether you have a job or a place to live, it’s vital to understand what a credit score is and the principles of how your score is determined. Without that information, you could unknowingly take actions that might negatively affect your financial future.

Your credit scores will be different depending on:

• The scoring model used to calculate it (the two best-known being FICO and VantageScore)
• The credit bureau whose report is used to generate your credit score
• The exact time your credit score is requested from a credit bureau

FICO is the Most Used Credit Scoring Model

Fair Isaac Corp., developed the credit scoring model, FICO in 1989. FICO says its score is used in more than 90% of U.S. lending decisions, and no one denies it’s the dominant scoring model which is submitted to the credit bureaus.

To have a FICO credit score, you must have a credit account that’s at least has a six months history and activity on an account within the previous six months—they don’t need to be the same account. If you meet that criteria, the rest of the formula for calculating your FICO score remains a trade secret. However, FICO does share the categories it uses to group data and how it weights those categories. To understand the breakdown of your total score review the following:

• 35% is your payment history. Reflects you paid your creditors on time.
• 30% is what you owe. How much you’ve used of your available credit. Experts suggest you use 30% or less of your available credit to score well.
• 15% is the length of your credit history. How long your accounts have been open, and the timing of your most recent account transactions. A longer credit history pays a higher score.
• 10% is your credit mix. Considers the various ways you borrowed money, such as credit cards, installment loans, mortgages, retail accounts and so on. A diverse mix works in your favor.
• 10% is your new credit. Reflects the credit inquiries you’ve made and the new accounts you’ve opened. A lot of activity in this category will lower your score.

Keep in mind that these general guidelines are not absolute. FICO says the weighting varies depending on the exact details of your credit profile. For example, scores for credit newbies are calculated differently than those for people with long-established credit.

Different Credit Bureaus Produce Different Credit Scores

The data used by FICO or VantageScore models generally comes from one of the three largest credit reporting bureaus—Equifax, Experian, and . These companies collect information from creditors about your debts and payments history. Because creditors report different information to each credit bureau, at different times, your scores are likely to be different at each. Also, as mentioned above, each bureau uses slightly different FICO models. Therefore, when you get your free credit score you’ll want to know which bureau it came from. If your score isn’t what you want it to be today, you can improve it over time by managing your credit responsibly.

We understand at J.J. Best Banc that your credit score is a numeric summary of your credit history used to predict your level of risk as a borrower. You’ll likely have many credit scores, because of modest variations in how your credit history is gathered and reported and in how the two main scoring models compute their results. Ultimately, you have control over your credit score because it reflects the level of responsibility you bring to your own credit management. Not happy with your credit score? Learn how to improve it.

Ready to Apply for a Car Loan?—Apply online at JJBEST.com or call your personal Loan Officer at 800-872-1965. We look forward to servicing you.