 TITLE: A Beginner’s Guide to Building Credit CONTENT: How a Credit Score Is Calculated\n--------------------------------\nA credit score is a number that uses the information that appears on your credit report to estimate how likely you are to repay a loan on time. Lenders refer to this score to help them determine their level of risk in lending you money. That's because credit scores are based on the idea that past actions are predictive of future behavior. Specifically, a credit score is designed to predict your likelihood of falling at least 90 days behind on a bill within the next two years.\nThough there are many credit scoring models, most lenders use the FICO® Score☉ or VantageScore®. Both range from 300 to 850, with higher numbers generally indicating a lower risk to lenders. Each credit scoring model uses a proprietary algorithm. Some more heavily weigh certain data, but the same general rules apply: You will earn a higher score if you make all your debt payments on time, keep revolving balances well below your credit limit, and have a variety of account types.\nYou have no control over which scoring model a lender will use, but you do have control over your own financial habits to ensure the information that ends up on your credit report helps your scores.\nFirst, understand what does not go into a credit score. Employment status and income will not play a factor, though you will list them on a loan application. Also absent from your scores: Your age, race, gender, where you live and other personal identifying information.\nSo, what are credit scores calculating? Your credit reports tabulate how well you have been managing your financial obligations. To develop a credit score you'll need to open and use credit accounts, such as loans and credit cards. Your activity with them—how long you've had the account, number of on-time payments and other factors—is used to calculate your scores.\nFor a loan, credit scoring models will factor in the age of the loan, the amount, whether you made any late payments and the balance left on the loan. For a credit card, what matters is your monthly payment pattern, how much of your available credit you're using, length of time you've had it and your total number of credit lines.\nExpect your credit scores to be negatively impacted if your credit reports show late or missed payments, foreclosures, collection accounts or charge-offs. If you use too much of your available revolving credit—30% or more for most scoring models—your credit score could take a hit. Also, each time you apply for credit, a hard inquiry will be noted on your report. Too many hard inquiries in a short period of time can shave points from your score. END