Every bank uses their own formula to determine whether someone is credit worthy. Every bank also uses the same information from at least one of the three credit bureaus: Equifax, Experion, and TransUnion.
These credit bureaus and banks use the following criteria to calculate a FICO credit score:
- Credit Card Utilization (High Impact)
- Payment History (High Impact)
- Derogatory Marks (High Impact)
- Age of Credit History (Medium Impact)
- Total Accounts/Account Mix (Low Impact)
- Credit Inquiries (Low Impact)
As I said in the first sentence, each bank looks at these criteria in their own way but, for the most part, they use the same score.
It is very important to understand how using credit effects your score and to monitor your credit.
Most of these free services use what is referred to as a FAKO score because they use their own criteria to calculate the score. This means when you see your credit score on an application for credit, it will be different than the score reflected on Credit Karma or Credit Sesame. They are usually pretty close but more importantly, you see the same credit report that the banks see.
It is important to monitor that credit report for any fraud or discrepancies.
Credit Report and Maximizing Bank/Credit Rewards
I open at least 1 line of credit per month but overall my credit score has gone up from when I first started doing this.
After I got my first credit card it 2010, my credit score stayed at about 730 depending on credit card utilization. Now my credit score hovers around 750.
Negatives: Every time I open a line of credit I get a hard credit inquiry that stays on my report for 2 years but only really effects my score by a few points for a month or so. I also reduce my average age of accounts which does have a lasting impact on my credit score but it is really the difference from it being 750 instead of 760.
Positives: Your total number of accounts increases, your total credit line extended increases, and it allows you to have a lower credit utilization – which has a high impact on credit score in the short term.
Pay all of your accounts on time and in full, monitor your credit with a free service, and keep a low credit utilization ratio.
With that your score should continue to be good or, if you are repairing your credit score, it will increase faster. Ultimately, healthy credit allows me to open dozens of accounts and receive thousands of dollars a year in welcome bonuses.