Misconceptions

• There is no universal credit score. In reality, there are well over 1,000 competing credit scores operated by competing credit bureaus. In most cases, they use the 300-850 credit scale calculated using the same formulas, with the major exception of the VantageScore scale, which runs from 501-990 and uses an academic letter grade system to make it more readily understandable by most customers.
  
  

Significance

• The most commonly used score is FICO, whose 300-850 scale is imitated by the vast majority of credit bureaus. The exact proportion of how the score is determined is not known, but most experts have estimated that it is composed of 35 percent payment history, 30 percent debt level, 15 percent depth of credit history, 10 percent recent credit requests and 10 percent mix of credit. Even so, this is not necessarily a clear-cut guide to understanding a credit score. A bankruptcy in the last ten years, for example, has a very powerful effect on credit score regardless of payment history after such an event.
  
  

Features

• Delinquent payments have unusually strong effects on a credit score. If an account has gone to collection, it will often bring the credit score down by 100 points or more. Criminal behavior involving loans-such as fraud--has a similarly strong negative effect on credit score that will outweigh other categories. A credit score is essentially an average of past behavior. The more severe the credit problems over a longer period of time, the larger the negative effect on the score and the longer it takes to repair the issues.
  
  

Considerations

• There is no way to instantly improve a credit score. Credit bureaus look for consistency of behavior over an extended period of time when they consider upgrading your report. Settling or paying off a delinquent account can have a significant rapid effect on your credit report--as can correcting an error--but even those take months to years to raise the credit substantially. There is no way to super-charge a credit score upward.
  
  

Effects

• Knowledge of how a credit score is calculated does help you to construct a plan to improve it over time. Some common errors about credit reports include the belief that cutting overall available credit is enough to improve a credit score. The chief thing that matters in that area is reducing the debt to available credit ratio. Credit bureaus consider it to be good if that number remains below 15 percent at all times. Missed payments have significant negative effects on credit score, even if they are not related to debt management, such as late electricity bill payments.