by Matt Frankel, CFP | Updated Sept. 22, 2021 - First published on Sept. 21, 2018
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Here’s what we know about where your credit score comes from.
Higher credit scores can give you access to the best credit card offers, help you get lower interest rates on mortgages and other loans, and can even make your car insurance rates go down. However, many people don’t know where their credit score comes from. With that in mind, here’s an overview of what credit score you should be looking at, how it is calculated, as well as what information is not included in your credit score.
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To be perfectly clear, there is more than one kind of credit score. In addition to the FICO® Score, there’s the Vantage Score, the PLUS Score™ by Experian, the TransRisk New Account Score by TransUnion, and more.
However, the FICO® Score is the industry standard, and by a wide margin. In fact, the FICO® Score is used in more than 90% of lending decisions and is so popular that other types of scoring are often referred to as “FAKO” scores.
In fairness, the other scoring models I mentioned can do a great job of letting you know approximately where you stand. However, it’s tough to make the case against the score that the people making lending decisions are probably going to be looking at. So, for the rest of this discussion, you can assume the term “credit score” is referring to the FICO® Score.
We don’t know the exact makeup of the FICO® Score. In other words, there’s no way to know exactly how much your score will be affected if you apply for a new credit card or pay off $1,000 of credit card debt.
However, we do know the broad outline. The FICO formula is made of five categories of information, each with a different weight:
|Category||% of Your Score|
|Length of credit history||15%|
Data source: myFICO.
FICO® Scores range from a low of 300 to a maximum of 850, with higher scores being better. The average score is about 700, while scores above 740 are considered to be very good and scores above 800 are widely considered to be exceptional.
Here’s a rundown of what each category means:
Another important point is that any information that isn’t included in these categories is not a part of your FICO® Score. For example, it’s a common myth that your salary is a key factor in your credit score, but this is 100% false.
Other information that has no impact on your FICO® Score includes, but is not necessarily limited to:
The exact FICO formula is a closely-guarded secret, but by knowing the categories of information included in your score -- as well as what’s not included -- you can be well-positioned to make financial decisions that could maximize your score.
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