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What is Credit?

What is Credit?

Credit is your proven ability or inability to make payments over time and make your payments on time.

What is your Credit Score?

Your credit score is a number that comes from a formula applied to your credit history. This formula is used to estimate the likelyhood of you missing a payment in the next year.

How Credit Scores are Calculated

In the United States, there are three major credit reporting agencies (CRAs) - Equifax, Experian, and TransUnion - that collect and maintain information on your credit history. 

There are a few different methods use to calculate your credit score, but they all consider similar factors, including:

Payment history: This accounts for a large portion of your credit score and reflects whether you have made your payments on time. Late or missed payments can have a negative impact on your credit score.


Credit utilization: This refers to the amount of credit you are using compared to the amount of credit available to you. Using a high percentage of your available credit can be a sign of financial strain and may hurt your credit score.


Credit history length: A longer credit history can be a positive factor in your credit score, as it shows that you have a track record of managing credit responsibly.


Credit mix: Having a diverse mix of credit accounts, such as a mortgage, a car loan, and three to five credit cards, can be positive for your credit score.


New credit: Applying for several new credit accounts in a short period of time can be a red flag to lenders and may lower your credit score.  Your Credit applications will drop off your credit report in two years and after six months will have very little impact on your score.


The exact formula used to calculate your FICO credit score is the intellectual property of Fair Issac Corporation the credit scoring company. 

However, it is generally accepted that the above factors are the most important in determining your credit score.

The Vantage 3.0 credit scoring system is used by Credit Karma and many other credit reporting systems.  It will approximate your FICO score.

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