How Credit Works

Understanding Your Credit

Knowledge is power. Learn how credit works so you can take control of your financial future.

FICO vs Vantage Scores

Understanding the two major credit scoring models can help you better strategize your credit improvement.

FICO Score

The most widely used credit score, relied on by 90% of top lenders. Ranges from 300 to 850.

Score Factors:

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of History (15%)
  • Credit Mix (10%)
  • New Credit (10%)

Vantage Score

Developed by the three credit bureaus (Equifax, Experian, TransUnion). Also ranges from 300 to 850.

Score Factors:

  • Payment History (Extremely Influential)
  • Debt & Balances (Highly Influential)
  • Age & Type of Credit (Moderately Influential)
  • Total Available Credit
  • Recent Credit Behavior

What Creates Bad Credit vs. Good Credit

What Hurts Your Credit

  • Late or Missed Payments

    Payment history is the #1 factor — even one late payment can significantly impact your score.

  • High Credit Utilization

    Using more than 30% of your available credit signals risk to lenders.

  • Collections & Charge-offs

    Unpaid debts sent to collections severely damage your credit report.

  • Bankruptcies & Foreclosures

    These major negative events can stay on your report for 7-10 years.

  • Too Many Hard Inquiries

    Multiple credit applications in a short period can lower your score.

How to Build Good Credit

  • Pay Bills On Time

    Set up autopay or reminders to never miss a payment.

  • Keep Utilization Low

    Aim to use less than 30% of your available credit.

  • Maintain Old Accounts

    Keep older credit cards open to build credit age.

  • Diversify Your Credit

    Mix of credit types (cards, loans) can help your score.

  • Limit New Applications

    Space out credit applications to avoid multiple inquiries.

Types of Credit

Understanding different credit types helps you make better financial decisions.

Revolving Credit

Credit cards, lines of credit

  • Set credit limit you can use repeatedly
  • Pay minimum or full balance each month
  • Balance fluctuates based on usage
  • Interest charged on unpaid balances

Installment Credit

Mortgages, auto loans, personal loans

  • Fixed payment amount each month
  • Set term (24, 36, 60 months, etc.)
  • Balance decreases over time
  • Typically lower interest rates

Secured Credit

Requires collateral deposit

  • Requires cash deposit as collateral
  • Deposit usually equals credit limit
  • Ideal for building or rebuilding credit
  • Can convert to unsecured later

Unsecured Credit

No collateral required

  • No deposit or collateral needed
  • Approval based on creditworthiness
  • Higher limits for good credit
  • Greater responsibility required

Ready to Improve Your Credit?

Let our experts help you navigate the credit repair process and achieve your financial goals.