Life Coaching Tips: Your Credit Score and How it Works

  • 19 Dec, 2016


What is a credit score?

A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan.

How are credit scores calculated?

Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The three major credit reporting agencies don’t necessarily use the same scoring software, so don’t be surprised if you discover that the credit scores they generate for you are different.

Why are credit scores sometimes called FICO scores?

The software used to calculate a great number of credit scores was created by Fair Isaac Corporation–FICO.

Which parts of a credit history are most important?

Use these percentages as a guide:

35% – Your Payment History 30% – Amounts You Owe 15% – Length of Your Credit History 10% – Types of Credit Used 10% – New Credit

Your Payment History Includes:

Number of accounts paid as agreed
Negative public records or collections
Delinquent accounts:

total number of past due items
how long you’ve been past due
how long it’s been since you had a past due payment

What You Owe:

How much you owe on accounts and the types of accounts with balances
How much of your revolving credit lines you’ve used–looking for indications you are over-extended
Amounts you owe on installment loan accounts vs. their original balances–to make sure you are you paying them down consistently
Number of zero balance accounts

Length of Credit History:

Total length of time tracked by your credit report
Length of time since accounts were opened
Time that’s passed since the last activity
The longer your (good) history, the better your scores

Types of Credit:

Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards)

Your New Credit:

Number of accounts you’ve recently opened and the proportion of new accounts to total accounts
Number of recent credit inquiries
The time that’s passed since recent inquiries or newly-opened accounts
If you’ve re-established a positive credit history after encountering payment problems
In general, checking to make sure you aren’t attempting to open numerous new accounts

Credit scoring software only considers items on your credit report. Lenders typically look at other factors that aren’t included in the report, such as income, employment history and the type of credit you are seeking.

What’s a Good Credit Score?

Credit scores (usually) range from 340 to 850. The higher your score, the less risk a lender believes you will be. As your score climbs, the interest rate you are offered will probably decline.

Borrowers with a credit score over 700 are typically offered more financing options and better interest rates, but don’t be discouraged if your scores are lower, because there’s a financing product for nearly everyone.


Lets Talk Counseling has Life Coaches available online now to answer any questions about your credit history and how it can affect you.  All you need to do is click "Sign Up" at the upper right hand side of this screen to schedule an appointment.  Appointments are live/video conferencing all from the comfort of your own home.