Credit One Bank - What is a Credit Score?

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Credit One Bank - Credit 101: What is a Credit Score?

A credit score is a number calculated from the information available within your credit report. It helps others to determine your credit risk. The higher your credit score number, the less risky you may appear to someone viewing your credit report. With a higher credit score you are more likely to receive the credit you're applying for. Conversely, the lower your credit score, the more risky you may seem to those who view your credit report. When you are applying for any form of credit including credit cards, personal loans, auto loans, home loans, or home equity lines of credit, lenders need to know and evaluate your credit risk level. They can obtain this credit information in your credit report. It is important to note that your credit score is calculated based on both good and bad credit information contained within your credit report.

Whatever type of credit you are applying for, it's great to aim for a good credit score and a healthy credit report. It's important to note that your individual credit score is dynamic and will change periodically. Your credit score, during any given month, may be different compared to the previous month. When applying for credit, make smart decisions and monitor how your credit score can improve over time. Likewise, with poor financial decisions, your credit score may decrease over time.

Data that is used to calculate your credit score generally falls into five different categories: 1) New Credit; 2) Debt Owed; 3) Credit History; 4) Payment History; and, 5) Various Types of Credit Used.

New Credit:

In this section of a credit report, you may find information such as the number of recently opened accounts and new credit inquiries. Any credit inquiry older than 12 months will have little impact on your credit score. In fact, inquiries alone won't necessarily affect your credit score. Only inquiries that are a product of a credit application initiated and authorized by you will factor into your credit score. Involuntary inquiries, such as those made by companies interested in extending you a pre-approved offer of credit, will not affect your score. If you don't have many accounts or your credit history is short, then inquiries can affect your credit score more. Inquiries only remain on your credit report for 24 months.

Debt Owed:

In this section of a credit report, you may find the amounts or debt owed on revolving accounts such as credit cards or installment loans such as auto loans, home loans, student loans, etc. Also shown may be the proportion of your credit line (your balance compared to your credit line) used for revolving accounts or the total proportion of the amount still owed for an installment loan (your balance compared with your original loan amount).

Credit History:
Time is the factor in this section of a credit report. You may find the reported time since your accounts were opened, as well as the time since activity has been noted on your accounts.

Payment History:

In this section of a credit report, you may find the payment history information on accounts including credit cards, home loans, personal loans, student loans, etc. If applicable, you may also find amounts past due and length past due on accounts and any accounts that are currently in collections. The number of accounts that have been paid on-time are also shown here. Additionally, unfavorable public records such as liens, delinquencies, judgements and bankruptcies are shown in this section.

Various Types of Credit Used:

In this section of a credit report you may find the various types of accounts you utilize, including credit cards, installment loans, mortgages, retail and finance accounts, etc.

Are there various types of credit scores?

Yes. While the FICO score is the most typical credit scoring method in the United States, other credit scoring methods do exist.

•	FICO Score: This is the most well-known credit score model used in the United States. FICO is an acronym for Fair Isaac Corporation whose credit score is the most widely used by lenders and banks.
•	Application Risk Scores: Many lenders use scoring systems that consider information from your credit application.
•	Customer Risk Scores: Also called behavior scores, these scores often consider the credit score along with information on how you have paid a lender in the past if you are a current customer.
•	Other Credit Scores: In addition to FICO, there are other credit scoring systems available to lenders. One such product is VantageScore. VantageScore is a credit rating product available from the three major credit bureaus: Experian, Equifax, and TransUnion.