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Your credit score matters and is fundamental to your overall financial health. Without a good credit score, you could be turned down for the loans you want and need or, if you can get a loan, you could pay excessive interest charges. A FICO (Fair Isaac and Company) score is the standard of assessing credit risk used by the three major credit reporting agencies: TransUnion, Experian, and Equifax.
We made our Anatomy of Good Credit Infographic interactive to help consumers better understand and retain the information on what makes up a credit score. The use of visuals as an educational tool has been proven to help certain types of learners, so it’s our hope that our readers will find this infographic helpful by displaying the FICO credit score information through an x-ray-like presentation.
What your FICO Score Means to Lenders
A credit score is used by lenders to determine your loan risk, aka, how likely you are to repay the debt. Your credit score is calculated based on an analysis of your credit report and represents your creditworthiness. You credit can be in bad, fair, average, good, and excellent standing.
- Consumers with a credit score of 800 or higher have excellent credit and will be extended the best interest rates available and may even get approved for higher credit lines. These consumers will likely be able to open up any credit card on the market, including the best rewards cards available like those offered by Chase, Citi or American Express. The top 20% of U.S. consumers hold a score of 800 and above.
- Consumers with a credit score of 740-799 are considered good-excellent credit. They will still likely receive a great rate on interest, but perhaps not the lowest rates. Consumers that fall in this credit category will not likely have any problem getting approved for some of the best offers, but perhaps won’t be able to get the Platinum Card by American Express, for example. The top 40% of U.S. consumers hold a score between 740-799.
- Consumers with a credit score of 670-739 have average-good credit. These consumers can expect to receive industry average rates, but won’t have the ability to get approved for any card on the market. This FICO Score is considered the average score of U.S. consumers.
- Consumers with a credit score of 580-669 have fair credit. These consumers will have very limited options on the types of credit cards they can get approved for and should only consider opening up a credit card if they are absolutely positive they can manage the account responsibly. If you feel as though you might mismanage your account, consumers in this credit category should only open up a secured card. This FICO Score is below the average score of U.S. consumers.
- Consumers with a credit score of 579 or less have bad credit. Consumers in this credit category have represented a very poor credit history and won’t likely get approved for a credit card with the exception of a secured card or prepaid debit card. This score represents the bottom 20% of U.S. consumers.
What Makes up Your Credit
- Payment History –Just like the human brain stores and records memories, your payment history is a record of your historical payments. Your payment history makes up the largest percentage of your overall FICO credit score - 35%. Whether or not you’ve always paid bills on time or have a few delinquent payments, this information will be available to view by all future and current lenders.
- Amounts Owed – Just like you stomach only uses parts of your food for energy, you should only be using part of the available credit to you. Factored into this category are the total amounts owed across all accounts and the total amounts owed on a single account. Your debt-to available credit is also knows as your credit utilization ratio, makes up 30% of your overall FICO credit score. You should never use more than 30% of your available credit.
- Length of Credit History – Your legs get you to where you need to go, and over time, you can create a time-line of all the places you’ve been and milestones you’ve accomplished. Your credit history makes up 15% of your overall FICO credit score and shows lenders a timeline of your financials such as what accounts you have open, what accounts you’ve closed, the length of time each account has been open, and more. In general, a long credit history is preferred over short ones because it shows more information to lenders, giving them more data to determine your credit worthiness. Consumers with no credit history are just as risky to lend to as those with a poor credit history simply because the lender has no way to determine their credit worthiness, which is also why first-time credit card holders typically don’t receive more than $500-$1,000 credit line to start.
- New Credit & Credit Inquiries – When reaching out for new credit, or applying for a new credit card, potential lenders will submit the credit inquiry to the credit bureaus to pull your credit score. Credit inquiries only makes up 10% of your overall FICO credit score. There are soft and hard credit inquiries so it’s best to know what makes them different. A hard credit inquiry will remain on your credit for two years. A good credit score should show minimal credit inquiries in a 12 month period. A large number of inquiries represents greater credit risk.
- Types of Credit - When reaching out for new credit, no matter the account type, a log is recorded of all accounts in your name. Your credit mix makes up 10% of your FICO credit score. This takes into consideration the types of accounts opened, such as installment accounts, retail, mortgage, revolving accounts, car loans, utility accounts, etc. Lenders want to see a good mix, but you should never open an account thinking it will help your credit score. Only take out a new line of credit if absolutely necessary. 6 Credit Tips
Check out so you can start your journey to excellent credit!
- Make payments on time. If you are going to submit a late payment, contact the company before payment is due to discuss your options.
- Keep balances low and pay off as many accounts as possible.
- Keep old credit accounts open, especially if you have a short credit history.
- If you’re looking for a new line of credit, only apply for new accounts when you absolutely need them so your score doesn’t reflect a large number of inquiries and new accounts. However, if you are looking for loan rates on a mortgage or car loan and have numerous inquiries on the same type of loan in a short period of time, those inquiries won’t be counted as multiple inquiries.
- Dispute and correct any errors on your credit report.
- Monitor your credit score regularly and seek assistance when needed. Use Credit Concierge to check your credit score for free, talk to a credit expert and get tips and tricks for managing your credit health.