Credit scores can sometimes feel confusing or intimidating – but they don’t have to be. Think of your credit score as a snapshot of how you manage borrowed money. In this Credit Clarity series, we’ll break down the basics and demystify how credit scores work so you can better understand what affects your score and how to build a stronger financial future.

What is credit?

It is an agreement where someone receives goods or services now with the understanding that they will pay the creditor back later. 

What is a credit score? 

• A three-digit number typically ranging from 300 to 850.
• Reflects your creditworthiness based on your credit history.

What is a credit report? 

A statement that has information about your credit history and current credit activity, showing details of how you are currently and have previously managed credit accounts. Credit reports are generated and provided by three credit bureaus: Experian, Equifax, and TransUnion.

How can I access my credit report?

There are many ways to access your credit report and see your credit score. Here’s two ways:

• Annualcreditreport.com – you can get all 3 credit bureaus for free once a year.
• Heritage Grove’s Credit Score Tool – available in digital banking!

What does it take to get a score?

One tradeline with a payment history of 6 months + activity reported in the last 6 months.

What makes up my credit score?

The FICO score is the most common scoring method, used by about 90% of lenders, although you may also see a Vantage Score used in credit decisions.

Here are the criteria FICO uses to calculate your score and their weights:

• Payment history (35%)
• Amount owed (30%)
• Length of credit history (15%)
• New credit (10%) 
• Credit mix (10%)

The Vantage Score is calculated using these criteria in order of importance:

• Total Credit Usage, Balance, and Available Credit (extremely important)
• Credit Mix and Experience (highly important)
• Payment History (moderately important)
• New Accounts Opened (less important)
• Age of Credit History (less important)

Because the different elements have different weight, it is easy to see how scores can differ between these two methods. Payment history and the amount of credit you use are highly important on both scoring methods, so those are two things you need to focus on when managing your credit. Experts recommend keeping your usage of credit below 30% of what is available and paying all your bills on time to keep your score at its best.

What is a “good” credit score?

Both FICO and Vantage Scores range from 300 to 850, but the rankings of “poor,” “fair,” “good” and “excellent” vary slightly. Generally, though, the higher the score, the better credit offers you will receive.

These are the ranges for the FICO score:

300-629 = poor
630-689 = fair
690-719 = good
720-850 = excellent

And here are the ranges for the Vantage Score:

300-600 = poor
601-660 = fair
661-780 = good
781-850 = excellent

How can I build my credit?

If you’re looking to build credit, start small. Apply for one credit card and use it wisely. Make small purchases and pay them off each month. This will show that you can make responsible choices with credit and that you are continuing to live within your means.

Once you’ve had that card for a while, you may be ready to make a larger purchase, such as a car. Make a down payment, if you’ve got funds saved up to minimize the amount you need to borrow. When deciding how much car you can afford, consider monthly payments in addition to the total amount financed. And remember that even though you may technically be eligible to fully finance an expensive car or truck, keeping your monthly expenses low will help you not only keep building a good credit score but also fully fund an emergency savings account, a rainy day fund, and your other long- and short-term savings needs. Lower expenses can also help you manage income loss or other situations that can cause negative changes to your credit.

Taken together, these actions will help you keep your credit score moving in the right direction.

How can I improve my score?

Sometimes, it seems that building credit from scratch is an easy step-by-step process, but rebuilding and improving your credit score can be so hard. If you’ve been hit with a financial situation that has resulted in a lower credit score, go back to fundamentals. Make payments on time and pay debts off so you are using less of your available credit. It will take time to rebuild your credit, but as you make smart credit decisions, you will see that score improve.

If you have questions or would like more information check out our financial education resources or chat with a Member Service Representative by call/text 503.588.0211 or email creditunion@ourgrovecu.com.

Read more credit management posts:
Before You Say Yes: Pros & Cons of Store Credit Cards
Strategies for Managing a High Debt-to-Income Ratio