How to Explain Your Credit Score

Your FICO credit score, calculated by Fair Isaac Corp. based on information on your credit reports, is a very important number. A high credit score makes it easier to get loans and credit cards and to qualify for lower interest rates. A low score can impair your ability to get credit, insurance and even employment. Although Fair Isaac does not release its exact formula, you can explain your credit score by knowing the main factors Fair Isaac considers in its calculations.

Instructions

1

Review your payment history, taking any late payments into account. Over a third of your FICO score is based on your payment history. If your score is low and you have a history of late payments, that will explain a large part of why it is low.

2

Calculate how much you owe to creditors. Just under one third of your FICO score is based on your outstanding loan and credit card amounts. If you owe too much in relation to your income, it will explain why your score might be low.

3

Count how many different types of accounts you have on your credit report. Having a variety will explain part of why you might have a higher credit score than someone who only has credit cards. It is better to have a mixture of credit cards and other loan types, like a car loan or mortgage. Creditors like to see a good mix of revolving lines and installment loans.

4

Consider whether you have recently applied for any new credit cards or other accounts. When you make too many applications, the high number of inquiries on your credit history will explain a dip in your credit score. Creditors don't like to see a flurry of applications or a lot of recently opened accounts.

5

Note the average length of time your credit accounts have been open. If you have a relatively long credit history, with long-term accounts that have a good payment history, it will explain a higher credit score. A short history with very few accounts will result in a lower score.