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Where Do Credit Scores Come From?


Where Do Credit Scores Come From?

Credit scores can affect your life in many important ways. First, anytime you apply for a mortgage, car loan, credit card, or financing of any kind, your credit score will typically be looked at to determine whether you are approved or denied for your financing application. If you are approved, your credit scores are looked at again to determine the type of interest rate and terms you will be offered. Credit scores are often the #1 factor considered whenever you apply for a loan.

Since credit scores are generally the first key to loan approval, it is important to understand where your credit scores come from and how they are calculated. There are 3 major credit bureaus in the United States: Equifax, TransUnion, and Experian. If a lender were to pull your credit report and score from each of the 3 bureaus, all 3 of those scores would likely be at least a little different.

There is more than one type of credit score available as well. In fact, there are hundreds. Currently, the type of credit score brand which is most commonly used by lenders is the FICO Score (though VantageScore continues to gain ground in the marketplace).

FICO Scores range from 300 - 850 with higher credit scores indicating less credit risk. The following chart shows the basic makeup of how your FICO credit scores are calculated:


Payment History, which considers factors pertaining to how you have managed your credit obligations both currently and in the past, accounts for 35% of your FICO Scores. This category can also be described as "the presence or absence of derogatory information."

If you have a history of making late payments on your financial obligations, your credit score will almost certainly be on the lower end of the spectrum. It may sound crazy, but some late payments could potentially damage your credit scores more than any other factor on a credit report including bankruptcy, foreclosure, or repossession (especially if the late payment is severe, recent, and if the account is currently past due).

Amounts Owed accounts for 30% of your FICO Scores. The primary factor considered within this category is your revolving utilization ratio. FICO's scoring models will consider the amount of credit card debt (aka balances) on your credit report and will compare it to your available credit limits. This higher your debt to limit ratio climbs on your reports, the worse the impact will be upon your scores.

Here is an example of how revolving utilization is calculated. If you have a credit card with a $500 limit and your credit report shows a $500 balance on the account, your utilization ratio is 100%. At 100% utilization your credit scores are practically guaranteed to be impacted negatively. However, keep that same credit card account paid off and your credit scores will almost certainly receive a boost. High credit card balances can significantly lower your credit scores, even if you pay every single monthly payment on time.

Length of Credit History makes up 15% of your FICO Scores. FICO considers the average age of your credit lines as well as the age of your oldest account to determine how many points will be awarded to your credit score for this category.

The older the accounts appearing on your credit reports, the better. Merely opening a new account can potentially lower your credit scores, even if you have never missed a payment on the account – so proceed with caution when applying for new credit. You do not have to be afraid to open new credit; however, you should probably develop the habit of only opening new credit when really necessary.

New Credit makes up 10% of your FICO Scores. One of the primary factors considered within this category is how often you apply for new accounts.  Every time your credit report is pulled as part of an application for financing a record of the pull, known as a "hard inquiry," is added to your credit report(s).

Hard inquiries have the potential to impact your credit scores negatively. However, a “soft inquiry” of your credit report (such as requesting a copy of your own personal credit report) does not hurt your credit score at all.  If you have not reviewed your credit reports in a while, you are entitled to a free copy of all 3 of your reports every 12 months from Checking your reports at least several times a year for errors is highly recommended.

Types of Credit Used accounts for the final 10% of your FICO Scores. To maximize your scores in this category it is important to have the right mixture of account types on your credit reports. FICO rewards consumers who show that they have experience managing a variety of account types (i.e. mortgage accounts, revolving accounts, installment accounts, student loans, etc.). The more diverse the accounts on your credit reports the better your scores will fare.

Have specific questions about your credit reports? Our caring credit experts are here to help. Please contact us via email or call 704-499-9696. We would love to hear from you!

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Michelle Black is an author and a credit expert with nearly 2 decades of experience, the credit blogger at, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. .


7 New Year's Resolutions to Improve Your Credit


7 New Year's Resolutions to Improve Your Credit

Whether or not you are a believer in New Year's resolutions it is a smart idea to take an honest look at your credit from time to time in order to see how it can be improved. Good credit can help you to save tons of money, get approved for the loans you need, and can even help you to land a better job. It is 100% worth your time, energy, effort, and money to work towards achieving and maintaining the best credit possible.

Here are 7 steps that every single person can take to make steps toward having better credit this year.

1. Pay every bill on time.

The importance of paying your credit obligations on time, every time cannot be overstated. In FICO's credit scoring model a whopping 35% of a consumer's credit scores are assigned based upon factors included in the "Payment History" category of a consumer's credit reports. If late payments do occur you can bet the bank that they will have a very negative credit score impact.

2. Cut spending.

Overspending is perhaps the #1 cause of credit problems for most Americans. When consumers charge more than they can afford to pay off in any given month not only do they hurt their credit scores by doing so (yes, credit card debt can in fact lower credit scores even when payments are made on time), but they also set themselves up for financial problems and serious credit problems in the future. In fact, overspending can lead to late payments, collections, judgments, and even bankruptcy if the problem is left unchecked.  

3. Make a plan.

Failure to plan is the same as planning to fail. A well planned budget is a crucial step towards healthier credit. Smart consumers tell their money where to go instead of wondering where the money went after it has already been spent. CLICK HERE for a free copy of the HOPE4USA Basic Budgeting Worksheet to get started.

4. Establish credit.

Credit cards can be extremely useful tools in building or rebuilding better credit, as long as they are managed properly (on-time payments and never revolving a balance from month to month). Even consumers with credit issues can qualify for many secured credit cards. CLICK HERE for a list of credit cards to compare and see which ones might be a good fit for you.

5. Become familiar with your credit reports and scores.

Every consumer should be in the habit of checking all 3 of his credit reports often. The credit bureaus and your creditors are obligated by law to report accurate information on consumer credit reports. However, it is up to you and you alone to ensure that the information contained on your credit reports is actually correct.

You can access your 3 free credit reports each year at (credit reports only, not scores). You can also access your credit scores for a fee or as part of a free trial offer from a credit monitoring service. CLICK HERE to compare credit monitoring services which may offer free or low cost credit scores as part of their introductory offer.

6. Correct errors.

Errors occur on credit reports all the time. In fact, in 2013 the Federal Trade Commission released a study which found over 40 million errors to be present on consumer credit reports. If you discover incorrect or suspicious information on your credit reports then you have the right to dispute that information according to the Fair Credit Reporting Act.

Disputes can be handled yourself or you also have the right to hire a professional credit expert like our HOPE4USA team to assist you. CLICK HERE to schedule a no-obligation credit analysis with a HOPE4USA credit expert to learn more about how our team can help you fight for the better credit you deserve. Fixing credit problems can certainly be a difficult job, but it is not a job that you have to do alone.

7. Establish goals.

The final tip is perhaps the first step that you should take as you set out on your journey toward better credit. Identify the reason why you want to achieve better credit. Do you desire to purchase a home for your family? Is your goal to have the strong credit you need to finance your education or the education of your children? Do you need better credit to start or build a business? Building better credit can be a long, hard journey (especially if you are working alone without professional help). Your "why" can help you to stay the course even if you feel frustrated or impatient at certain points within your journey. Your "why" is also the reason that all of your hard work will be worth it in the end. 


Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at, a recognized credit expert on talk shows and podcasts nationwide, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.


5 Proven Ways to Earn Better Credit Scores


5 Proven Ways to Earn Better Credit Scores

Achieving and maintaining great credit should be a lifelong commitment. After all, your credit reports and scores exert a tremendous amount of influence over your life and finances. Your credit can impact your ability to purchase a home, purchase a vehicle, land your dream job, and even your ability to pay for your child's college tuition. When you struggle with bad credit you are often either turned down for the things that you need or you are forced to pay much more than you would be required to pay if your credit was in better shape. Check out these 5 proven credit score improvement tips to help you begin your journey down the path toward a better financial future.

1. Set up automatic payments.

Payment history is the #1 factor considered by credit scoring models like FICO and VantageScore. If you want to reach stellar credit scores then it is absolutely essential that you pay your credit obligations on time, every single time. Setting up automatic payments for your bills, especially credit card payments which tend to fluctuate from month to month, can serve as a safety net to protect you from late payments due to busyness and oversight.

2. Pay down credit card debt.

The second most important factor considered by credit scoring models is probably the percentage of your credit limits which are being used. This is also referred to as your revolving utilization ratio and it is calculated by measuring the relationship between your credit card limits and the balances you owe on those accounts. For example, if you have a credit card with a $5000 limit and you owe $2500 on the account then you are at a utilization level of 50%. The higher your revolving utilization ratio climbs the lower your credit scores will fall. Paying down your credit card debt, even by a mere 10% at a time, can easily start to push your credit scores back uphill.   

3. Open new credit strategically.

Another important credit score factor is the age of the accounts on your credit reports. Both the average age of your accounts and the age of your oldest account are considered when it comes to credit score calculations. Opening new accounts too frequently will lower the average age of the accounts on your credit reports and, as a result, could potentially have a negative impact upon your credit scores. Therefore, it is best to open new credit accounts only when necessary and never because you simply want to score a 15% discount off your purchase at the mall.

4. Pay attention to your credit "mixture."

Credit scoring models reward people whose credit histories show that they have a history of managing a variety of different types of credit accounts. Therefore, if you have only 1 type of account on your credit reports - such as credit cards - then you are probably missing out on some potential credit score points. Maintain a variety of account types (i.e. auto loans, mortgages, installment loans, credit cards, etc.) over time and you could see a potential credit score improvement.

5. Stop having your credit pulled too often.

Any time your credit reports are pulled a record of the access, known as an inquiry, is placed upon your credit reports. Some inquiries, though not all of them, have the potential to damage your credit scores. Of course inquiries are only worth 10% of your FICO credit scores and around 5% of your VantageScore credit scores so they are not a huge factor considered during credit score calculations. Still, it is wise to be very selective about who you allow to pull your credit reports and when you allow them to be pulled. (Note: You never have to worry about checking your own credit reports. In fact, you should check them often via or a credit monitoring service which includes your credit scores. These types of "soft" inquiries will never hurt your credit scores.)


Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 


The Fastest Way to Improve Your Credit Scores


The Fastest Way to Improve Your Credit Scores

Smart consumers know to be skeptical of any "fix your credit quick" promises. However, there certainly are real, actionable credit steps that you can take to see a fast improvement in your credit scores. In this short video Credit Expert, Michelle Black, will show you the most actionable way to improve your credit scores in a hurry.