Understanding Credit Scores: A Comprehensive Guide

Credit scores play a crucial role in our financial lives, influencing everything from loan approvals to interest rates. At O1ne Mortgage, we understand the importance of maintaining a good credit score and are here to help you navigate the complexities of credit scoring. Call us at 213-732-3074 for any mortgage service needs. In this blog, we will explore credit score ranges, how credit scores are calculated, how to check your credit scores, and tips on improving your credit.

What Are the Credit Score Ranges?

Credit scores typically range from 300 to 850, with higher scores indicating a lower risk to lenders. Different models, such as FICO and VantageScore, use this range to assess creditworthiness. Here’s a breakdown of the common credit score ranges:

• Recent VantageScore models: 300 to 850
• Base FICO® Score models: 300 to 850
• Industry-specific FICO® Score models: 250 to 900

Creditors often categorize these scores into smaller groupings to evaluate applicants and manage accounts:

• Poor Credit: 300 to 579
• Fair Credit: 580 to 669
• Good Credit: 670 to 739
• Very Good Credit: 740 to 799
• Excellent Credit: 800 to 850

How Are Credit Scores Calculated?

Credit scores are calculated based on the information in your credit reports from major credit bureaus: Experian, TransUnion, and Equifax. While the exact formulas are proprietary, both FICO and VantageScore share general information on their scoring factors.

Key FICO® Score Factors

• Payment history (35%): This is the most important factor, reflecting whether you’ve paid your loans and credit cards on time.
• Amounts owed (30%): This includes your outstanding balances and credit utilization ratio.
• Length of credit history (15%): The average age of your accounts and the age of your newest and oldest accounts.
• Credit mix (10%): Having a mix of revolving and installment credit accounts.
• Recent credit applications (10%): Hard inquiries from applying for new credit accounts.

Key VantageScore Factors

• Payment history: Extremely influential, similar to FICO.
• Total credit usage: Highly influential, focusing on credit utilization rates.
• Credit mix and experience: Highly influential, considering the variety and history of credit accounts.
• New accounts opened: Moderately influential, looking at recent hard inquiries and new accounts.
• Balances and available credit: Less influential, but still a factor.

How to Check Your Credit Scores

You can check your credit scores from various sources, and the score you receive may depend on the credit scoring model and the credit report analyzed. For example, you can get a FICO® Score 8 from Experian for free, which includes factors that are helping and hurting your scores. A paid premium membership from Experian offers FICO® Scores based on your credit reports from all three credit bureaus with quarterly updates.

How to Improve Your Credit

Improving your credit score involves focusing on the underlying information in your credit report. Here are some actionable steps to help you boost your credit:

• Pay all your bills on time: On-time payments reported to the credit bureaus help build your credit and increase your scores.
• Pay down your loan and credit card balances: Reducing your debt and keeping balances low can improve your credit utilization ratio.
• Look for credit accounts that don’t require good credit: Options like secured credit cards and store credit cards can help you build credit if managed responsibly.
• Add on-time payments with Experian Boost®: This feature allows you to add eligible rent, utility, phone, and certain streaming services payments to your Experian credit report, potentially improving your scores.

Frequently Asked Questions

What Is a Good Credit Score?
A good credit score typically ranges from 670 to 739. This range allows you to qualify for many loans and credit cards with favorable terms.

Why Are My Credit Scores Different?
Credit scores can vary depending on the scoring model and the credit report used. Different models may weigh factors differently, leading to variations in your scores.

What’s the Highest Possible Credit Score?
The highest possible credit score is 850 for most FICO and VantageScore models. Achieving this score indicates excellent creditworthiness.

Keep the Big Picture in Mind

While it’s important to know where you stand in the credit score range, remember that all your credit scores depend on the information in your credit reports. Monitoring your credit and working on improving it over time can help you increase all your scores and get closer to the top of the range.

At O1ne Mortgage, we are committed to helping you achieve your financial goals. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to guide you every step of the way.