October 3, 2022

Credit Scoring Models

There are many types of credit scoring models that are available to consumers to track their credit scores. Quite often, these consumer scoring models are different than those used by a lender. If you are using a credit monitoring service such as Credit Karma, it is important to understand that those credit scores may not be the same as what a lender will use when making a decision on a loan. The most common credit score used by lenders is the FICO (2.0 or 8.0) credit scoring system.  Your credit score is based on five different categories within your credit report:

• payment history—35%
• amounts owed—30%
• length of credit history—15%
• new credit—10%
• types of credit used—10%

Tips To Improve Your Credit Score

Payment history and amounts owed are the two categories that most directly impact your credit score. With that said, the two best things you can do to keep your score in good shape are:

• Always make your payments on time. (Regular, on-time payments of the minimum amount, or greater, will improve your score.)
• Pay off debt and don’t max out your credit limits. (The amount of credit you use, also called credit utilization, affects your score. Make it a goal to only use 30% or less of your credit limit and pay down debt.)