Your FICO score is a mathematical computation of your financial management skills, derived from information reported to and published by credit bureaus. The result of this computation is your credit score, which can range from 300 to 850. This score is used to quickly compare your financial management skills against others or against organizational requirements. Higher scores tend to indicate stronger credit than lower scores.

For example, let's say that Albert has a credit score of 550, while Beth has a score of 700. Comparing only these numbers, it's very likely that Beth has a better handle on her finances than Albert.

Credit algorithms have long been the subject of debate, and I'll be the first to admit that some of the arguments against their accuracy are valid.

The challenge stems from the fact that any process designed to affect a large population is bound to have outliers.

For example, in early 2025, one of our clients was preapproved for their first home purchase using an impressive credit score of 742. This client had never lived outside of their parents' house prior to closing on their first home, and their only active line of credit (a credit card) had been reporting for only three years.

On the other side, one of our clients owns a real estate empire and regularly earns over one million dollars per year. This individual has several active projects at any given time, and funds them largely through credit cards, which have high utilization. Because of this, his credit score usually sits around 600.

When it comes to financing major purchases, we at Mortgage Advocacy encourage our people to use credit scores as metrics to determine the general health of one's credit. For example, if your score is 550, rather than fixate on how "low" your score may be, we encourage you to instead look at why your score is a 550, and what can be done to improve it.

Your credit score is the result of a mathematical algorithm that computes your creditworthiness based on many different factors. That said, there are dozens of different algorithms that are currently in use. On the whole, these algorithms are divided into two families- FICO (which stands for Fair Isaac Corporation) and Vantage.

There's two reasons for so many different formulas:

1. Most of these algorithms are proprietary and very closely guarded (meaning it's near impossible to know how exactly they work)
2. Each algorithm weighs different aspects of one's credit differently

Check this out. There are two different main credit families- FICO and Vantage.

FICO scores tend to put greater emphasis on the performance of installment debts and weigh late payments pretty harshly. Because of this, FICO scores tend to be used by mortgage companies because lenders want the assurance that the folks that they lend to have displayed a history of paying large bills on time.

Vantage scores, on the other hand, put a bit more emphasis on credit utilization, which is how much of a credit line you use at any given time. Consumer credit companies (the ones which grant credit cards) are more likely to use these scores because they want to ensure that their clients aren't simply digging themselves into a debt hole that they won't be able to climb back out of.

There are three credit bureaus in the United States:

• Equifax
• Experian
• Trans Union

Back in the early 1900's, there were dozens of different credit reporting companies, but over the years, they joined or were amalgamated into the big three listed above.

Having three bureaus is actually a good thing, because it encourages competition and innovation between the big three. For example, let's say that Equifax develops an algorithm that more accurately predicts the creditworthiness of potential buyers, more lenders will rely on Equifax's reports over Experian and Trans Union, which, in turn, will force the other two bureaus to adapt their processes to earn that business back.

Fun fact: it's unlikely that your credit scores with each bureau will be the same across the board, not only because each bureau uses their own algorithms, but not every lender reports to all three bureaus. This is why, in the mortgage world, lenders will require credit reports from each bureau to ensure that they're getting the full picture of someone's financial foundation before deciding to back a loan.

FICO calculates your credit by assigning weights to various aspects of your credit. The exact breakdown of these variables is protected information, but a good rule of thumb is calculated below:

• Payment History (35%): This includes on time and late payments, along with negative events such as bankruptcies.
• Utilization (30%): This includes running balances and how close to the maximum limit each line currently is.
• Length of Credit History (15%): This is determined by the average age of your accounts, with an older history boosting your score, while newer accounts can decrease it.
• Credit Mix (10%): How many types of credit do you maintain? (Credit cards, mortgages, auto loans, personal loans, etc.)
• New Credit and Inquiries (10%): Numerous hard credit pulls can decrease your score, as well as the establishment of new accounts.

Vantage calculates your credit by assigning weights to various aspects of your credit. The exact breakdown of these variables is protected information, but a good rule of thumb is calculated below:

• Payment History (Approx. 41%): This includes on time and late payments, along with negative events such as bankruptcies.
• Utilization (Approx. 20%): This includes running balances and how close to the maximum limit each line currently is.
• Credit Age and Mix (Approx. 20%): This is determined by the average age of your accounts, with an older history boosting your score, while newer accounts can decrease it. Also included is the types of credit do you maintain. (Credit cards, mortgages, auto loans, personal loans, etc.)
• New Credit and Inquiries (Approx. 11%): Numerous hard credit pulls can decrease your score, as well as the establishment of new accounts.
• Available Credit (Approx. 6%): The less credit you have utilized compared to the maximum amount you can use, the higher this aspect of your score will be.

If you look at both FICO and Vantage scoring models, over 60% of your credit score is derived from your account history and credit utilization. That said, the simplest way to ensure your credit score climbs to brag-able levels would be to pay your bills on time and prevent yourself from overleveraging your accounts.

Unfortunately, life happens sometimes, so the next best things to know is how to bandage up your financial boo-boos before they mess up the carpet.

Credit History: Time heals all wounds, at least where credit is concerned. While most of your financial transgressions will remain on your record for seven years, most of the damage inflicted to your scores caused by late payments will have been mitigated after twenty-four months. If you have a missed payment or two (but not a delinquent balance), your best way to fix your score would be to ensure that you don't miss any more payments. Some folks have reported success appealing to whatever creditor you missed those payments with and having them wipe said payment from your record, but this is a very rare occurrence.

Utilization: Your credit utilization is the ratio of your current balances on each credit line against the maximum limit for that account. If you're over the max limit (which can occur if your creditor allows over drafting or if the aggregating interest tips your current balance over the limit), your scores will take a major hit. If your current utilization is over 50%, there is a high likelihood that your scores are dropping because of your utilization. Personally, we advise to keep your utilization under 30%, as we have seen scores improve at this level. Ideally, you should keep your utilization around 15%, because that will still allow your account to report active payments (which boosts your score), while being low enough that an errant purchase or interest payment shouldn't tip you over the 30% mark.

There are many ways in which you can check your credit scores, just be aware that determining one's credit is a business function, which means that services that give you your score for free are likely to be less accurate than a credit pull from a credit service provider.

If you're simply looking to get an idea of what is on your credit, we recommend Annualcreditreport.com, as it is the only government-managed service that allows you to secure one free credit report per year from each bureau. These reports, however, do not include your actual scores- simply what has been reported to each bureau in terms of utilization and payment history.

If you want to get a rough idea as to your score, many credit card companies, along with service providers such as Credit Karma and Experian.com offer free Vantage scoring.

If you want to identify what your credit scores are for the purposes of a mortgage, we recommend working directly with a loan officer to pull those scores directly. If you don't want to bring a loan officer into the mix, you can go through MyFico.com, but this is a paid service that will cost you money. Additionally, be aware that multiple credit pulls during a short period of time can have a detrimental effect on your credit score.