How is your credit score calculated?

Whether you're applying for one of our auto, business or real estate loans, your credit standing plays a part in the decision of whether you receive financing.

You may be aware that your credit report lists all your open accounts and notes factors such as late payments and debts sent to collections. However, what may not be as clear is how that information is used to calculate your credit score, which is a three-digit number that rates your creditworthiness. There are different methods used to arrive at this figure, and you have more than one score. The most common one is generated through software provided by the Fair Isaac Corporation, a company based in California that created the first credit score.

The FICO score range is from 300 to 850. Most people have a score between 600 and 850, and ratings of 720 or higher are generally regarded as good credit. This information is listed separately from your credit report and can be ordered for a fee from the Fair Isaac Corporation or the three major crediting reporting bureaus: Experian, Equifax and TransUnion.

The calculation
Credit scores are created in different ways depending on where you are applying. If, for instance, you're considering one of our mortgages, the calculation we use could consider different factors from the ones combined by a retail store evaluating a credit card application. For the sake of consistency, here is a breakdown for FICO scores:

  • Payment history (35 percent): This is the most important part of your score, as it accounts for the biggest portion. It includes on-time payments, liens, bankruptcies and any delinquencies and how long they've been past due.
  • Amounts owed (30 percent): This includes all your accounts and the outstanding debt for each one. Also, your credit utilization ratio, which is how much credit you're using compared to your total credit limit, is also factored in here.
  • Length of credit history (15 percent): How long your accounts have been open and the time since they were last active are part of this portion.
  • Type of credit used (10 percent): This tells us about the accounts you have open, whether they are credit cards, auto loans or home loans.
  • New credit (10 percent): Recent credit inquiries and opened accounts are included in this portion.

For more information about smart ways to manage your finances, contact Landmark Bank.

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