Unlocking the Mystery: Understanding Credit Scores 1

Credit Scores 101

Credit scores are essential to our financial lives, guiding lenders on whether we can be trusted to pay back loans and credit card balances on time. A credit score is a numerical rating of our financial responsibility, based on our credit history.

The three chief credit bureaus—Equifax, Experian, and TransUnion—generate these scores. They draw data from credit reports, which document our credit history. An average of the scores from all three credit bureaus is used to generate our official credit score, which ranges from 300 to 850.

The Components of Credit Scores

Credit scores are determined by five main factors. The first is payment history, or whether you’ve reliably paid your bills on time. The second factor is the amount of credit you’re using compared to the amount of credit available to you. This is known as credit utilization. The third is the age of your credit accounts, with longer histories contributing to better scores. Fourth is the number of new credit accounts you’ve opened recently, since a bunch of new, unproven credit accounts can be a warning flag. Finally, carrying a mix of credit types, like a mortgage, auto loan, and credit card, can help diversify and boost your credit score.

New Innovations in Credit Scoring: UltraFICO and Experian Boost

The latest innovations in credit scores are UltraFICO and Experian Boost. UltraFICO was announced in 2018 and pilots launched in early 2020. The new credit-scoring system takes into account banking activity—like checking and savings balances—as well as payment history when calculating credit scores. If you maintain a balance of around $400 to $500 for three months, have a bank account that’s been open for at least six months with some use, and you don’t have negative balances, that can boost your credit score.

Experian Boost was launched in 2019. It adds on-time utility and phone payments to credit reports, potentially increasing consumer scores quickly and easily. Once customers grant permission, Experian has access to payment data through a user’s bank account. Both UltraFICO and Experian Boost can help supplement other factors traditionally used to calculate credit scores.

Why Understanding Credit Scores is Crucial

Your credit score is one of the most critical pieces of financial information available about you. It can wildly affect your ability to get a mortgage, rent an apartment, get a car loan, or even obtain utility services. Having a good credit score can help make all of these financial endeavors less expensive. With a higher score, you’ll be eligible for preferred interest rates, depending on the scores given by lenders. A better credit score can also create access to better credit cards with rewards for groceries, gas, or travel. It can also influence whether you can get approved for a loan, and how much you get approved for. With a low credit score, a lender might not even approve a loan or credit application at all, or approve it with significantly less favorable terms.


Understanding credit score is necessary in today’s world. These scores are crucial decision-making tools for financial organizations that decide whether to offer credit or loans to individuals. By knowing how credit scores are calculated and the factors that influence them, you can monitor your score and take steps to improve it. Innovations like UltraFICO and Experian Boost are making it easier than ever for people to work with lenders, secure credit and loans, and build the financial lives they desire. Interested in exploring the topic further? alltran financial, external content we’ve prepared for you.

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