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A Brief Guide to Credit Scores

posted on Friday, March 5, 2021 in Education

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How much do you know about credit scores, how they’re calculated, and what they’re used for? Ramp up your knowledge with this helpful guide so you know what to expect next time you apply for credit.

What’s the Score?

Your credit score is a part of the package of information lenders use to decide whether or not they will lend you money or extend credit. Other factors include things like your employment history and income and their own internal scoring systems.

There are two primary credit scoring models you need to know about: FICO® and VantageScore. Each may be used to determine your creditworthiness: that is, how likely you are to repay your loan. Your score can influence your interest rate, length of loan, and even how much you can borrow.

Your FICO Score is based on information received from the three major credit bureaus, Experian, TransUnion, and Equifax.

Your VantageScore, meanwhile, was actually developed by the three major credit bureaus to compete with FICO.

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Calculating Scores

Both scores use a range of 300-850. A higher score indicates to lenders that you are fiscally responsible and the risk of lending to you is low.

Influences on your FICO Score

  • Most Influential: Payment history 
  • Highly Influential: Amount of debt
  • Moderately Influential: Length of credit history 
  • Less Influential: Newly opened accounts, mix of credit type

FICO Score Ranges 

  • Exceptional (800 - 850): 21%
  • Very Good (740 - 799): 25% 
  • Good (670 - 739): 21% 
  • Fair (580 - 669): 17% 
  • Very Poor (300 - 579): 16% 

Did You Know: 67% of Americans have Good FICO Score or better.

Source: Experian 

FICO Fast Facts

  • Is not influenced by current interest rates on loans you already have.
  • 45-day window for rate shopping before credit is affected.
  • Six months of credit history required to establish a FICO score.
  • Has a separate Auto Score specifically for car loans.

Influences on your VantageScore

  • Most Influential: Payment history 
  • Highly Influential: Age of credit and mix of credit types, percent of available credit used
  • Moderately Influential: Total debt
  • Less Influential: Newly opened accounts, inquiries

VantageScore Ranges

  • Excellent (781 - 850): 23% 
  • Good (661 - 780): 38% 
  • Fair (601 - 660): 13% 
  • Poor (500 - 600): 21%
  • Very Poor (300 - 499): 5% 

Did You Know: 61% of Americans have a Fair VantageScore or better. 

Source: Experian

VantageScore Fast Facts

  • Does not factor in paid-off collections when calculating your score.
  • Late mortgage payments are weighted more than other late payments.
  • 14-day window for rate shopping before credit is affected.
  • Can produce a score just a month or so after credit line is opened.

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The average FICO score is 711; the average VantageScore is 688.

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What Will My Lender Use?

FICO is used by 90% of lenders, according to myFICO, and has been around since 1989. (VantageScore only hit the scene in 2006.)

While the FICO Score is currently the gold standard of credit scoring systems, VantageScore is extending its influence throughout the lending industry. Banks, credit unions, credit card companies, mortgage lenders, and more continue to increase their use of VantageScore. In addition, landlords and some government agencies also use VantageScore.

If you’re not sure which scoring model a lender will use, just ask!

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Quick Credit Tips

  1. Pay on time, every time. Even if you’re only making the bare minimum payment (but try to pay more!), meeting that debt obligation is key to building good credit.
  2. Pay off bills with the highest interest first. You’ll reduce the amount you pay in interest over time, saving you money in the long run.
  3. Or, conversely, pay off the smallest bills first. This is the theory behind Dave Ramsey’s Debt Snowball Plan: You’ll see results quickly, and stay motivated.
  4. Put “bonus” funds toward paying down debt. That includes a bonus from work, a tax refund, or any other lump-sum payment you receive. (But only if you have a savings cushion built up first!)

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Protect and Manage Your Credit with Credit Sense. 

You can access your credit score* along with personalized tips on how to improve or maintain an already great score with Credit Sense. It's built right into your Northwest Bank Online and Mobile Banking App, so you won't need a new login.

*Know Your Score Today!

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