How Is My Credit Score Calculated?

Many people make resolutions to improve their credit. Unfortunately, good credit repair goes beyond just simple debt settlement, credit counseling, or paying off negative items. In that regard, Lexington Law is confronting exploitative creditors, abusive debt collectors, and erroneous credit reports so that new clients can make this year a much brighter year. While achieving these goals can be challenging, the potential upside is raising their credit score and paying far less in interest as a result.

Perhaps the first question that naturally emerges is, “How is my credit score generated?” To answer this, we must first understand who creates our credit scores, and why. Other posts have discussed the importance of your credit score and how your credit report is used when considering everything from what mortgage you will qualify for, what your insurance rate will be, and what interest rate you will be charged. Although there are many proprietary credit scores readily available to consumers, the most widely used score that many lenders use is known as the FICO® score.

FICO Score

The Fair Isaac Corporation (FICO) generates a three digit number between 300 and 850 – your FICO Score – that assesses your default risk for potential lenders and insurance agents. The lower your score, the greater credit risk you present to your potential lenders. Scores that are incrementally higher represents you as less of a credit risk. Of course a number can never fully describe you as a person, but in most instances, a look at your credit report and score may be the deciding factor in any final credit decision and what interest rate you’ll pay.

While FICO is very private about how your credit score is generated, we know that it is based upon five main categories of information that found within your credit reports: debt to credit limit ratio, the presence of new credit, your overall credit mix, your credit repayment history, and how long you’ve had credit. If you were to envision your score as a pie, you would see that new types of credit and credit mix are comprising about 10% of your score each. Length of credit history controls a slightly larger portion at 15%, while your debt to credit limit ratio is a much larger slice at 30%. While you can see that all these factors weigh into your credit score and control what it will look like, it is your payment history that carries a weight of 35% of your credit score. Payment history is where so many negative credit items lurk, damaging your credit score in many instances for years on end.

With so much of your score likely depending on what if any negative items you have in your payment history, you can quickly see just how important credit repair can be for you. Here at Lexington Law we strive to assist you in removing the questionable negative items that appear within your credit reports and work to give you guidance on controlling the credit factors that help generate your credit scores. While your goal for a better score may at times seem difficult, we are here to help with affordable, comprehensive credit repair.