Credit scores 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 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 what kind of interest rate and terms you will receive. Credit scores are often the #1 factor considered when you apply for a loan.

Since credit scores are generally the first key to loan approval, let’s talk a little about where these credit scores come from and how they are calculated. There are 3 major credit bureaus in the United States: Equifax, Trans Union, and Experian. Typically, each credit bureau will give you a different score. 

There is more than one type of credit score available as well. In fact, there are hundreds. If you check your credit scores online you will likely be viewing some type of "consumer" credit score. However, the type of credit score brand most commonly used by lenders is the FICO credit score. 

The following chart shows the basic makeup of how your FICO credit scores are calculated:

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

If you have a history of making late payments on bills then your credit score will almost certainly be lower. It may sound crazy, but current late payments can even potentially lower your credit scores more than any other factor including bankruptcy, foreclosure, or repossession (especially if the late payment is severe, recent, and if the account is currently past due). One late payment could even potentially drop someone’s credit score 30-100 points, though the impact which any late payment will have upon a person's credit scores will be different from credit report to credit report.

Amounts Owed account for 30% of your FICO credit scores. FICO's scoring models will look at the amount of debt being carried by a person and compare it to that person’s available credit limit. This comparison is known as your revolving utilization ratio

For example, if you have a credit card with a $500 limit and you owe $500 on the card then your account is being 100% utilized and, as a result, your credit scores would be negatively impacted. 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 credit 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.  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 it is really needed. 

New Credit makes up 10% of your FICO credit scores. This refers to how often you apply for new accounts.  Every time your credit report is pulled to apply for a loan 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 reports (that is an individual requesting a copy of his/her own personal credit report to review the file) does not hurt your credit score at all.  If you have not reviewed your credit report in a while, you are entitled to a free copy every year from You can also check your scores at Checking your report several times a year for errors is highly recommended.

Types of Credit Used account for the final 10% of your FICO credit scores.  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 within this category. 

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 12+ year credit expert with HOPE4USA, the credit blogger at, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.