The Credit Score Unpacked

Mark Powlen Head of Growth at Tally
Head of Growth at Tally

These three digits are crucial to your financial health.

Most people understand the credit score basics. High credit score = good. Low credit score = not so good. For the best possible outcome when applying for a loan or credit card, the higher your score, the better. Seems simple enough.

What isn’t so simple, however, are all the factors that go into a single credit score. These three digits are so important to your financial health, but can be mind-numbingly complex. Misconceptions and myths abound, leaving many misinformed and confused.

Lucky for you, we’re obsessed with all things credit at Tally. One of our earliest hires was Head of Credit, Jason Huynh. As a former business director at Capital One, he’s spent his entire career geeking out about credit. The entire Tally team takes credit seriously. Understanding this stuff inside and out is so important to saving our users money.

We want to help you better understand credit scores so your brain hurts less every time the topic comes up. Read on to learn more about the key factors that go into your credit score.

Why do I have so many different credit scores?

You can find your credit score in a few different places. Budgeting tools like Mint and credit monitoring tools like CreditKarma provide them for free. So do most major credit cards. But, each source may offer scores that differ by a few points. What gives?

While it’d be so much easier if everyone had exactly one score to reference, there’s no such thing as simple when it comes to credit. The truth is, you actually have several credit scores. FICO and VantageScore are the two leading credit score providers. Each has different models and their own variations, which they’re continually updating to be more accurate.

Additionally, the three credit reporting bureaus (TransUnion, Equifax and Experian) maintain independent records of your credit history. This leads to even more variation between your scores. Their scores may differ slightly depending on which version they use and for what purpose. For example, the score referenced for an auto loan could be different than the score referenced for a credit card application.

The Fair Isaac Corporation, or FICO, is the leading credit score provider. Your FICO Score 8 is your most commonly used score, and it’s the one we use at Tally. VantageScore is the leading competitor to FICO. CreditKarma uses your VantageScore 3.0. These scores are usually a few points higher than FICO scores because they take into account more credit history.

When you apply for a loan, the bank or lender could reference any one of the scores above. They might even have their own model to calculate an even different score. It really depends on which criteria the lender determines to be most relevant in your credit history.

What’s considered a good credit score?

Most credit scores fall within a range of 300–850. In general, a score 700 or above is considered very good.

760-850: Excellent

700-759: Very Good

660-699: Good

620-659: Fair

619 or less: Bad

If you fall anywhere in the “very good,” to “excellent” range, you’re in good shape. These scores mean near-guaranteed approval rates, the best terms and the most competitive interest rates. Lenders consider you to be a reliable borrower with low risk. They expect you’ll pay back whatever money you borrow without defaulting.

The lower your score, the riskier you seem to lenders. If you fall in the “good” range, you’re likely to be approved, but at higher interest rates. If you fall into the “fair” range, you may still be approved, but with a lower line of available credit and even higher rates. Below the 660 range, you’ve got some work to do. You have fewer options and lenders are unlikely to offer you credit or a loan.

Keep in mind that credit scores fluctuate. As you take on different types of debt, your credit score will change. You’re not doomed if you have a less-than-ideal score. You can actively build your credit, significantly improving your score over just a few months or a year.

How credit score is calculated?

How are credit scores calculated?

FICO and VantageScore calculate credit scores differently. They both look at the following factors in your credit history and give varying weight to each.

FICO provides an exact breakdown of their credit score calculation:

  • 35% payment history: The most important factor in your FICO score is making on-time payments.
  • 30% amounts owed: Most credit experts recommend you keep your credit utilization below 30%.
  • 15% length of credit history: FICO averages the length of all your accounts. Closing long-standing cards reduces that average and could bring down your score.
  • 10% credit mix in use: Mortgages, auto loans, student loans, personal loans and credit cards are all in the mix. The more variety, the better.
  • 10% new credit: This takes into account new credit card applications and loans. A new application every once in awhile is expected, but a flurry all at once looks suspicious to lenders.

VantageScore provides the following information about how they calculate scores:

  • Extremely influential: Your payment history, which is simply paying your bills on time.
  • Highly influential: The age of your accounts and types of credit you carry. Maintaining a mix of accounts improves your score over time.
  • Highly influential: Percentage of credit used. It’s best practice to keep your balances under 30%.
  • Moderately influential: Total balances and debt. This includes the total amount of recently reported balances.
  • Less influential: Recent credit behavior. The number of recently opened credit accounts and hard checks.
  • Least influential: Available credit. The amount of your available credit you’re currently using.

There are several other factors some believe weigh into your score, but have absolutely no bearing. In all cases, none of the following can affect your FICO or VantageScore:

  • Race
  • Religion
  • Nationality
  • Gender
  • Marital Status
  • Age

Though FICO and VantageScore do not include the following, lenders may look at these additional traits to determine your creditworthiness.

  • Salary
  • Occupation or job title
  • Employer or employment history

This is just the tip of the credit score iceberg. Still, have a lingering question about what’s included in your score? Let us know in the comments and our team of credit experts will weigh in. We’ve seen many of our users’ credit scores increase using Tally, so if you’re looking to build your score or get it even higher, download Tally and sign up.

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