Credit Score How Credit Works

What is a Credit Score?

The second-most important factor is credit utilization, or the amount of extended credit currently being used by an individual. Those who are using a majority of their available credit will have a lower credit score, while those who use less than 20 percent of their available credit will have a higher credit score.

The remaining factors – credit history age, types of credit held, and hard account inquiries – hold a lesser role in determining credit score. It is entirely possible to have a high credit score with multiple hard account inquiries, just as it is possible to have a low credit score with a perfect payment history.

How often is my credit score calculated?

For many individuals, life runs on a set schedule. Many of us know when we get paid, when our bills our due, and when our favorite activities take place. However, credit often does not run on a schedule, and many of us find ourselves applying for credit as a result of life circumstances.

Lucky for us, credit scores are calculated on demand, anytime a credit score is pulled by either a creditor or a consumer. In theory, it would be possible to pull 30 different credit reports, and receive 30 different scores based on the most recent information available. This is good news for every consumer, because there is always time to improve a credit report before applying for credit.

I have a credit score – but what does it mean?

After understanding what goes into a credit score, consumers can better understand how to translate their score into actual gains in their financial life. With all the factors considered, each of the three credit bureaus can assign a credit score that ranges from 300 on the low end, all the way to 850 at the highest end. The higher a score is, the better that individual’s credit is assumed to be.

About the author

Joe Cortez

Joe Cortez

Joe Cortez is an award-winning journalist focused on credit and personal finance management. His content has been featured by CNN, The New York Post, The Sun, and USA Today, and has been quoted as an expert by The Street, Bravo TV, and The Weather Channel. In his spare time, he can be found traveling the world on points and miles. For more, follow him on Facebook and Twitter.

1 Comment

  • My question deals with a bankruptcy. Three of the banks continue to report 30-90 day past due payments even though the bankruptcy was discharged over two years ago and they have zeroed my balance. Those late payments still show up even though they are no longer being used. Is that fair?

Leave a Comment