Credit Tips – Part I

Understanding Credit 

Nearly all of America’s financial underpinnings are based on credit. Credit allows people to purchase or finance items that they can’t pay for in cash upfront – hence why it should always be used with great discretion. Credit allows people to buy a home, a car, and personal credit is usually a factor in obtaining a business loan. Therefore, in a credit-based economy, with stronger credit, you will qualify for a wider range of loan products and lower rates. 

Fortunately, consumers have a lot of control over their credit score. All three Credit Reporting Agencies (CRAs – Transunion, Experian, and Equifax, which gather all of your credit history and personal data) generally use the FICO algorithm to determine your credit score, which is the only one that really counts. They also have their own, similar scoring system (called the Vantage score). But stick with FICO since more than 90% of all lending decisions are based on the FICO scoring model only.

However, the data each CRA has can be different, which is usually why your score varies between the three CRAs. Equifax might not have that missed payment from 2 years ago whereas Transunion may have been able to capture that data. Keeping track of almost 300 million people’s data is bound to contain errors.

Beyond the CRAs, there are consumer reporting websites, such as,, etc., which typically use the most recent version of the FICO scoring model (version 8 or 9), which has evolved in recent years to be more fair (e.g., medical debt is treated more leniently in FICO 9). 

However, when banks pull your credit, for some reason their credit report vendors rely on version 2 or 3. So don’t be surprised if you pull your own consumer credit report, take it to the bank, and your score is different from the one on your consumer report, since the algorithm versions give different “weight” to different factors. That said, scores should be in the same ballpark.

Additionally, know that your credit report and score are different things. Your credit report displays all your credit accounts, payment histories, prior addresses, any judgments, bankruptcies, liens, collections, etc… and your credit score is simply a number generated by the FICO scoring equation based on the information in your credit report. Regardless of the scoring model used, that information it’s based on should be pretty much identical regardless of which company pulls your credit. However, as mentioned above, the CRAs don’t all possess the exact same data. (Experian is known to have the best data – i.e., most accurate and complete.)

And in reviewing your credit report from each of the CRAs, if any information is either:

  • Unverifiable
  • Incomplete
  • Inaccurate
  • Obsolete

… then you can (and should) contact the creditor to rectify the issue, usually resulting in a higher score. Unless it’s personal identification data (address, someone else’s information, etc.), then you should contact the CRA itself. Go to their respective websites to see what the best means of contacting them is.

Also, please note that when a bank or any creditor (car dealership, credit card company, etc.) pulls your credit, that is considered a “hard pull” which has about a 10-15-point negative impact on your credit. Usually, if you’re shopping car loans or mortgages for the same type of loan, additional dings for the same loan(even student loans) typically only decrease your score another 3-5 points each time within a 30-45 day period. That said, you can pull your own credit report every day and there will be no negative impact on your score, nor will there be any evidence of your pulling your own report on your report!

While we are not privy to exactly what goes into the scoring equations, we still have a window into the component parts. Which means there are proven ways to increase your score and keep your score up.

How Credit Scores Are Calculated

As stated earlier, the three main consumer credit bureaus (or CRAs) are TransUnion, Equifax, and Experian. Each bureau ranks personal FICO credit scores on a scale from 300 to 850. Most lenders consider a score above 670+ as good and a score above 740+ as very good.

There’s a gold standard of what goes into your credit score:

  • 35% Payment history on loans, credit cards, and other debt
  • 30% Utilization (how much of your available credit you’re using)
  • 15% Length of credit history
  • 10% Credit activity (e.g., applications for new loans)
  • 10% Diversity of credit

As you can see, payment history is the main determinant of your credit score, so the obvious way to build credit and keep your credit high is by paying all your bills on time.  Just remember to be patient… it takes time to build credit and proactive effort to maintain it.

While we all know to pay our bills on time, not to max out our credit cards, and to prevent unnecessary hard credit pulls,there are other techniques for maintaining and improving credit that you may not know about. Watch this blog for Part II – Credit Tips, where we will discuss some lesser-known ways to boost your credit score—and in turn, your ability to qualify for the best financial products!