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How Do Credit Score Work?

Road signs to good and bad credit

People need loans to keep up with changing and developing living conditions, make a living and live in better conditions. The key point of loans is the credit score. University students who do not qualify for federal student credits begin to need credit points during their university years.

What is a credit score?

A credit score is a three-digit number required to receive a credit or credit card. This number shows how much credit risk we have for lenders or creditors. That is, the credit score shows how responsible we are when making our payments and whether we can manage our money well.

The credit score is calculated based on the credit reports prepared by the three main credit reference institutions, Experian, Equifax and TransUnion (formerly CallCredit). Each credit reference institution has its own range of credit points and a method of calculating credit score. As can be seen from here, there is no credit score. Everyone has multiple credit scores.

There are also types of credit points. The most widely used and preferred type of credit score is the FICO credit score. Therefore, people pay particular attention to this credit score and pay attention to the FICO score type when receiving the credit score. Although not as much as FICO, VantageScore is the second most preferred and used credit score type. Getting a credit score on a VantageScore credit score type is easier and generally free of charge than a FICO credit score type. In addition, the VantageScore credit score is generally higher than the FICO credit score, as VantageScore and FICO differ, although they are similar.

How to credit score work?

To understand how the credit score works, it is necessary to know the factors that make up and influence the credit score. Since FICO is the most commonly used and preferred type of credit score, it is understood how the credit score works according to the 5 main factors that make up and influence the FICO credit score.

The 5 main factors that make up the FICO credit score are;

  • Payment history,
  • Loan utilization rate (current debt),
  • Length of credit history,
  • New account / Credit queries,
  • Types of credit (credit mix).

Payment history;

This constitutes 35% of the credit score and this is the factor that affects the credit score the most. The basis of the credit score is based on payments. It is not surprising that payment history is the most influential factor. The credit score increases when payments are made in full and on time, but incomplete and delayed payments will reduce your credit score. In fact, these negative situations are added to your credit reports and remain for 7 years. People with excellent credit points do not have overdue or under-paid.

Loan utilization rate (current debt);

This percentage, which indicates what percentage of your current credit balance is spent, should be 30% or less than the FICO credit score. It also affects your credit score by 30%. 30% limit should not be exceeded both in general calculation and in calculations made according to each credit or credit card. You should even stay at less than 10% to get an excellent credit score.

Length of credit history;

As the length of credit history increases, so does the credit score. The length of the credit history is not only considered for each credit, but also the average credit history. In order to have a good credit score, the average credit history length should be more than 9 years. The length of your credit history affects your credit score by 15%.

New account / Credit queries;

When you open a new account, you may be faced with a credit query and new accounts will negatively affect your credit score because lenders or creditors do not see your payments or do not know if you can make payments. The credit query that reduces your credit score is the hard credit inquiry. Soft credit inquiries do not reduce your credit score. Soft credit inquiries are made by yourself or by the lender or creditors you worked with. The remaining ones are hard credit inquiries and remain in the credit reports for 2 years. It affects the credit score by 10%. Decreases your credit score up to 20 accounts, but having 21 credit cards increases your credit score.

Types of credit (credit mix);

The best borrowers for lenders and creditors are those who create a credit mix by taking more than one type of loan. Individuals with a uniform type of credit are risk factors for lenders and creditors. The effect of the credit mix on the credit score is 10%.

You should pay particular attention to the first two points when running your credit score. Because the first two items constitute 65% of the credit score. Even if you fully comply with other conditions, any negative situation in your payment history may cause your credit score to remain low over the years. Therefore, compare your credit score and credit report at least every four months.


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