How Credit Scores Work

A credit score is a 3-digit number that predicts your likelihood and ability to pay back borrowed money. Lenders use credit scores to determine whether they are willing to offer someone a loan, and what interest rate to charge the borrower. The higher the score, the more likely the lender is to approve the loan. The lower the score, the higher the risk for the lender.

Where Your Credit Score Comes From

Your credit score is based on data that lenders like banks and credit card companies are required to provide to the three major national credit bureaus – Equifax, Experian and TransUnion. This data includes information on the status, balance, payment history and details of your credit accounts and loans.

Scoring companies analyze this data and use mathematical models to generate a credit score – typically a number between 300 and 850. There are several models and companies that provide this service, so you may sometimes find that your credit score varies a bit based on which model a lender uses.

Check out My Credit Manager in the CNB Mobile Bank app to get an idea of your current credit score.

How a Credit Score is Calculated

Credit scores are calculated based on five primary types of information:

Payment History (35%)

Your track record of paying bills on time, missing payments, defaults or bankruptcies.

Amount Owed/Credit Utilized (30%)

How much money you currently owe based on your total available credit limit. Using a low percentage of your available credit (generally under 30%) boosts your credit score.

Length of Credit History (15%)

The age of your oldest and newest accounts, as well as the average age of all of your accounts together. A longer, more established history is better for your credit score.

Credit Mix (10%)

The variety of accounts you manage, such as mortgage, credit card and auto loan. A diverse profile indicates you can manage different financial responsibilities.

New Credit/Inquiries (10%)

Each time you apply for credit, a lender must check your credit report. Opening too many new credit accounts in a short time can lower your score.

Want to boost your score?

Working toward a higher credit score (usually 760 or above) will go a long way in helping you get approved for loans and credit cards with the best terms and interest rates. And keeping your score high will help with rental applications, insurance rates and utility deposits.

Give your local City banker a call to discuss ways to improve your credit standing.