What Is A Credit Score?

A credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it I will get paid back on time?”  The score is generated through statistical models using elements from your credit report. However, your score is not physically stored as part of your credit history on the credit file.  Rather, it is typically generated at the time a lender requests your credit report, and then included as part of the report.

Three major credit reporting agencies create your credit score.  Because your credit report is an important part of many credit scoring systems, it is very important to make sure it is accurate before you submit a credit application.  To get copies of your report, contact the three major credit reporting agencies:

• Equifax – (800) 685-1111  (FICO/Beacon Score)

• Experian – (888) 397-3742  (Experian Score)

• TransUnion – (800) 916-8800  (TransUnion Score)

How Scores are Calculated

Designers of credit scoring models review a set of consumers – often over a million – who opened loans at the same time, and determine who paid their loans and who did not.  The credit profiles of the consumers who defaulted on the loans are examined to identify common variables  exhibited at the time they applied for the loans.  The designers then build statistical models that assign weights to each variable, and these variables are combined to create a credit score.

What is in a Credit Bureau Score?

The information that impacts a credit score varies depending on the score being used. Credit scores are only affected by elements in your credit report, such as:

• Number and severity of late payments

• Type, number and age of accounts

• Total debt

• Recent inquiries

If the business card/corporate card or gas card does not appear on your credit report, it will not affect your score.

What’s Not in a Credit Bureau Score?

Credit bureau-based scores, like those generated by Experian, cannot use demographics prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance, or exercise of rights under the Consumer Credit Protection Act.

Why Lenders Use Credit Scores

Credit scores help lenders assess risk more fairly because they are consistent and objective.  Consumers also benefit from this method.  No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status.

Credit Score Factors

Score factors are the elements from your credit report that drive your credit score.  For example, such elements as your total debt, types of accounts, number of late payments and age of accounts are what determine the outcome of your credit score.  Score factors can have a positive or negative affect on your credit score.

Factors with the Most Significant Impact to a Credit Score

Paying your bills on time is the single most important contributor to a good credit score. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you may want to minimize outstanding debt, avoid overextending yourself and avoid applying for credit needlessly.  Applications for credit show up as inquiries on your credit report, indicating to lenders that you may be taking on new debt.  You may want to use the credit you already have to prove your ongoing ability to manage credit responsibly.

If you do have negative information on your credit report, such as late payments, a public record item (e.g., bankruptcy), or too many inquiries, your best strategy may be to pay your bills and wait.  Time is often your best ally in improving credit.

Improving Your Credit Score

Scores reflect credit payment patterns over time with more emphasis on recent information.  In general, a score may improve if you:

• Pay your bills on time.  Delinquent payments and collections can have a major negative impact on a score.

• Keep balances low on credit cards and other “revolving credit.”  High outstanding debt can affect a score.

• Apply for and open new credit accounts only as needed.  Do not open accounts just to have a better credit mix – it probably will not raise your score.

• Pay off debt rather than move it around.  Do not close unused cards as a short-term strategy to raise your score.  Owing the same amount but having fewer open accounts may lower your score.

Also, make sure the information in your credit report is correct.  It will not affect your score to request and check your own credit report.  If you find errors, contact the consumer reporting agency and your lender.

How Long Does it Take to Rebuild a Score?

The length of time to rebuild your score after a decrease depends on the reason behind the drop in the score.  Most decreases in scores are due to the addition of a new element to your credit report such as a delinquency or an inquiry.  These new elements will continue to affect your score until they reach a certain age.  Delinquencies remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax liens remain for 15 years.  Inquiries remain on your report for two years.

What Happens if you are Denied Credit or do not get the Terms you Want?

If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice telling you the specific reasons your application was rejected. You have the right to learn the reasons if you ask within 60 days.  Indefinite and vague reasons for denial are illegal, ask the creditor to be specific.

Credit scoring systems consider updated information and change over time.  Sometimes, you can be denied credit because of information from a credit report.  If so, the Fair Credit Reporting Act requires the creditor to give you the name, address, and phone number of the credit reporting agency that supplied the information.  You should contact the agency to find out what your report said.  This information is free if you request it within 60 days of being turned down for credit.  The credit reporting agency can tell you what is in your report, but only the creditor can tell you why your application was denied.


DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org. DMCC is located at 3310 N. Federal Highway, Lighthouse Point, FL 33064.