Understanding your credit score

understanding credit score

What even is a credit score? A simple question with a not-so-simple answer. And whether you’re searching for traditional loans, credit cards, or even bad credit loans, your credit score will play a large role in being approved. As of June 2023, the rejection rate due to bad credit increased to 21.8%.

Financial wellness blogs across the internet give tips on checking, improving, and ensuring the accuracy of your credit score. You know that your credit score impacts how much you can borrow. But who sets the score, and what do they base it on?

In this article, we’ll go over the various factors that drive your credit score and dive deep into the two most popular credit scoring models out there. 

What Drives Your Credit Score?

First things first, you don’t have just one credit score. There are thousands of credit scoring models floating around, and they each calculate scores differently. When someone refers to your ‘credit score,’ they’re usually referring to your FICO score. Later in this post, we’ll detail the FICO credit scoring model, which is the most popular one there is. Most models, including FICO, are driven by data pulled from your credit reports.

Who Creates Credit Reports?

The big three credit bureaus (Experian, TransUnion, and Equifax) build your credit reports using information communicated by the banks and lenders you’ve had accounts with. As your credit report information drives your credit score, it’s important to regularly check your three reports for mistakes. Borrowers can get all three credit reports for free from 

How Is a Credit Score Calculated?

So what parts of your credit report do the scoring models focus on? Most scores are based on some mix of the following five factors:

Payment History

Payment history is the most significant input to most credit scoring models. If you haven’t paid on time in the past, creditors don’t think you’ll pay on time in the future. For example, multiple late payments on a personal loan can make it more challenging for you to qualify for online loans.

Credit Utilization 

Models also look at the ratio of credit-in-use to total credit available. Credit utilization ratios below 30% are considered strong. We walk through how to calculate and improve your credit utilization ratio in this article.

Credit History

Unless you’ve struggled to make payments on time, a longer history of credit use will help your credit score. Many young people with no credit history struggle to access credit. You can start building a credit history by becoming an authorized user on someone else’s card or using a secured credit card.

Credit Mix

The different forms of credit that you use play a role in determining your credit score. Having more lines and different types of credit may actually improve your bad credit score. That’s because creditors think that if you have experience handling credit in many forms, you’ll be more likely to handle the credit they’re offering.

Applications for New Credit

Lines of credit and loans that you applied for in the past year factor into most credit score calculations. Borrowing more won’t always have a negative credit score impact, but applying for several new lines of credit makes it look like you’re in financial distress. Distressed borrowers are riskier borrowers, so applying for many types of credit in a short period of time can lower your score.

The Different Credit Scoring Models

Most credit scoring models use the factors described above. They just weigh them differently, placing more or less emphasis on one factor over another. Now let’s look at how the two most popular credit scoring models, FICO and VantageScore, weigh the factors in their scoring models.

Score RangeFICO RatingVantageScore Rating
800 – 850ExceptionalExcellent
740 – 799Very GoodGood
670 – 739GoodFair
580 – 669FairPoor
300 – 579PoorVery Poor

The FICO Credit Score Model

The FICO general-purpose score is the best known and most often used credit scoring model. It’s produced by FICO, formerly known as the Fair Isaac Corporation, which is the dominant credit scoring firm. 

General-purpose FICO scores range from 300-850 and are calculated using the following factor weights:

  • 35% payment history
  • 30% credit utilization ratio
  • 15% credit history
  • 10% credit mix
  • 10% applications for new credit

Some lenders categorize potential borrowers as subprime, near-prime, prime, or super-prime when making lending decisions. The higher your credit score, the more attractive you’ll be to lenders and the more likely you’ll be to get a loan.

The VantageScore Credit Score Model

VantageScore is another credit scoring model. The three major credit bureaus joined forces to create the VantageScore in order to compete with FICO. 

VantageScores also range from 300-850, and the scoring factor-weights follow:

  • 40% payment history
  • 21% age and type of credit
  • 20% credit utilization ratio
  • 11% of total balances
  • 5% recent behavior
  • 3% available credit

As you can see, the VantageScore factors don’t have exactly the same names or weights as the FICO factors. ‘Age and type of credit’ combines the ‘credit history’ and ‘credit mix’ factors from the FICO calculation. The ‘total balances’ and ‘available credit’ factors break down the ‘credit utilization ratio.’ And ‘recent behavior’ captures the same thing as FICO’s ‘applications for new credit.’

Regardless, at the end of the day, FICO, VantageScore, and other credit models try to answer the same two questions: 

  1. How have you handled credit in the past?
  2. What’s your capacity to handle it in the future? 

Frequently Asked Questions About Credit Scores

What are credit reporting agencies?

Credit reporting agencies, also known as credit bureaus, are organizations that collect and maintain consumer credit information. The major ones include Experian, TransUnion, and Equifax. They provide this information to lenders, credit card issuers, and other financial institutions to help them make lending decisions.

How often do credit accounts get updated on my credit report?

Typically, lenders and credit card issuers report your account activity to credit reporting agencies monthly. However, the exact time can vary depending on the lender and the credit bureau.

What constitutes a good credit score?

A good FICO score ranges typically fall between 670 to 739, though this can vary slightly among different scoring models. A higher credit score indicates better creditworthiness, making it easier for you to get approved for a loan or credit card at favorable terms.

How can I access my free credit report?

You’re entitled to one free credit report every 12 months from each of the three major credit bureaus. You can request these reports through, which is the only authorized website for free credit reports.

Do all credit card issuers report to the major credit reporting agencies?

Most credit card issuers report to the three major credit reporting agencies. However, some smaller issuers or specialty cards might not report to all three, so it’s a good idea to check with your issuer if you’re unsure.

How can I get free credit scores?

Many financial institutions, credit card issuers, and personal finance websites offer free credit scores to their customers. It’s worth checking with your bank or credit card issuer to see if they provide this service.

If I improve my credit habits, how long will it take to see a higher credit score?

While the time can vary, positive changes in your credit habits, like paying down outstanding debt or consistently paying bills on time, can lead to a higher credit score within a few months. However, negative items, like late payments, can remain on your report for up to seven years.

What CreditNinja Wants You to Know About Credit Scores

Your credit scores can greatly affect your life. But luckily, there are ways to improve your financial history and credit score ranges. At CreditNinja, we know that having knowledge at your fingertips can help you better understand your creditworthiness and how to manage unsecured debt

If you want further information on credit scores or how to get a loan with no income, check out the CreditNinja Dojo!


  1. Borrowers are getting rejected for loans at the highest rate in 5 years │ Yahoo Finance
  2. Wondering why your credit score is bad? │ Los Angeles Times
Read More
emergency reasons to borrow money
A few emergency reasons to borrow money could include debt consolidation, car or home repairs, medical bills, moving costs, or a large necessary purchase.  Life is…
how to get someone to pay you back
There are several ways you can ask for your money back and get it; you can take an effective communicative approach, offer different avenues for…
how to get rid of late payments on credit report
You can only get rid of late payments on a credit report if there was a credit reporting error or fraud—which can be done through…
missed payment for car repo
While missing just one payment may not do severe damage to you as long as you are able to contact your lender and cover the…

Quick And Easy Personal Loans Up To $2500*