Understanding your credit score: a quick guide for our customers

Managing your credit score is a crucial part of your financial well-being. At One, we want to empower you with the knowledge you need to understand your credit score and the factors that influence it. In this guide, we'll break down what a credit score is, how it’s calculated, and what you can do to improve and maintain a healthy score. Save this page to use as a reference any time you need a quick credit refresh.

What is a credit report? 

A credit report is a detailed record of your credit history, compiled by credit bureaus. It includes information on how you manage your money with creditors, such as credit card companies, banks, and other lenders. There are three major credit bureaus in the United States: TransUnion®, Equifax®, and Experian®.  Each bureau maintains its own credit report on you, and the information may vary slightly between them.

At One, our Credit Score feature uses your TransUnion® credit report to provide you with your credit score and related credit information.

What is a credit score? 

Your credit score is a number that is intended to represent your creditworthiness—a measure of how likely you are to repay a loan or credit obligation. It’s a snapshot of your financial behavior, and can fluctuate over time as your credit report is updated with new information, such as paying bills on time or opening a new credit card. 

There are several different models the bureaus use for calculating your score (we’ll touch on this later), and the numbers usually range from 300 to 850. Higher scores represent strong credit history and indicate to lenders that you’re a reliable borrower, which may make it easier to qualify for loans and get more favorable loan terms, like lower interest rates. 

Here’s a quick look at how VantageScore® 4.0 credit scores are generally categorized in the One app:

• Excellent: 721-850
• Good: 661-720
• Average: 601-660
• Below Average: 300-600

What is VantageScore®?

A credit score model is a formula designed to calculate an individual's credit score. Two major companies, FICO® and VantageScore®, develop these models, which are then used by credit bureaus to determine your score. VantageScore® is unique in that all three credit bureaus use it, and the latest version is VantageScore® 4.0. The VantageScore® 4.0 is the model that One uses to provide your credit score. While both VantageScore® and FICO® scores serve similar purposes, their models may weigh information in your credit report differently, leading to variations in the scores you receive from different sources. Additionally, even if other providers are using VantageScore® to calculate your score, they may be using an older version of the model (e.g. VantageScore® 3.0). These variations in your scores are very common and do not indicate if either scores are wrong.

Why is the score from my other providers different?

Credit scores may vary between your providers due to several factors:

• Source of credit data: The three credit bureaus —TransUnion®, Equifax®, and Experian®—may have slightly different information in your credit reports. For example, some lenders don’t conduct hard inquiries (also known as credit checks) with all three credit bureaus when assessing credit applications, nor do they report to all the three credit bureaus, which may cause your credit score to vary between each of the bureaus. 
• Credit scoring models: Different models (e.g., VantageScore® vs. FICO®) can produce different scores based on how they weigh the information in your credit report. While both consider factors like payment history and credit utilization, they prioritize them differently, leading to variations in your credit score even with the same credit report data.
• Timing:Your credit score can change as new information is reported to the bureaus, so the timing of when the score is calculated can also lead to differences.

Factors that impact your credit score

Understanding the factors that make up your credit score can help you build and maintain healthy credit and take control of your financial health. Here are five key factors that influence your credit score: 

1. Payment History:
   • Your payment history reflects your record of paying bills on time, as shown by your on-time payment percentage. It is the most significant factor affecting your credit score. Late or missed payments significantly affect your score.
2. Credit Usage:
   • Credit usage refers to the amount of your available revolving credit (like credit cards) that you're using. Lower credit utilization typically benefits your credit score. It's calculated by dividing your current balances by your total credit limits on revolving accounts. For example, if you have two credit cards, each with a $2,500 limit, and you have a $0 balance on one but a $2,500 balance on the other, your credit utilization rate would be 50%.
3. Credit Age:
   • This factor considers how long your credit accounts have been open. Longer credit histories can have a positive impact on your credit score. 
4. Total Available Credit:
   • Your total available credit is the sum of your credit limits across your revolving (e.g. credit card) accounts. Having more available credit may be beneficial, as it may indicate that you have a good depth of credit and shows how you manage your money over time.
5. Hard Inquiries:
   • Hard inquiries — also known as hard credit checks — occur when a lender reviews your credit report during a credit application process, such as a credit card or loan application. Hard inquiries differ from soft inquiries, which do not affect your credit score and are typically done for background checks or when you check your own credit. The number of hard inquiries made in the last 2 years affect your score. Accumulating too many hard inquiries within this period may affect your credit score, as  it might suggest that you’re seeking more credit than you can manage. Note: ONE does not post a hard inquiry when you open a One Credit Builder or One Loan.

How can I improve my credit score?

Improving your credit score is a gradual process that involves consistently practicing good financial habits. While everyone’s  financial situation is unique, here are some general strategies that are used to positively impact credit scores over time:

Pay your bills on time:

• Why it matters: Payment history is the most important factor in determining your credit score, accounting for about 40% of the score. Additionally, consistent on-time payments allows lenders to know that you’re reliable when it comes to repaying your balances. 
• How to do it: Consider setting up automatic payments or create reminders on your phone so you don’t miss your due dates. If you’ve missed a payment, get current as soon as possible. Showing consistency over time in repaying bills on time will help your score recover.

Keep your credit usage low:

• Why it matters: Credit usage—the percentage of your available credit that you’re using—is another significant factor affecting your credit score. High credit usage rates suggest that you might be over-reliant on credit, which can be a red flag to lenders.
• How to do it: Aim to keep your credit usage below 30% of your total credit limit. For example, if your total credit limit across all cards is $10,000, try to keep your outstanding balance below $3,000. Paying down balances regularly and asking for credit limit increases (without increasing spending) may help reduce your credit utilization ratio.

Maintain a long credit history:

• Why it matters: The length of your credit history reflects how long you’ve been managing credit accounts. A longer credit history provides lenders with more data to assess your financial reliability. It can boost your credit score by demonstrating a consistent track record of responsible credit management.
• How to do it: Avoid closing older credit accounts, even if you no longer use them frequently. These accounts contribute to the age of your open credit accounts, which can positively impact your score. 

Limit hard inquiries:

• Why it matters: Hard inquiries occur when lenders check your credit report to make lending decisions, such as when you apply for a new credit card or loan. Too many hard inquiries in a short period can lower your credit score, as it might suggest that you’re seeking more credit than you can handle.
• How to do it: Only apply for new credit when necessary. If you’re shopping for a mortgage or car loan, try to keep your applications within a short time frame — usually 14 days — so that they’re treated as a single inquiry for scoring purposes. Additionally, avoid applying for multiple credit cards at once.

Regularly review your credit report for errors:

• Why It matters: Errors on your credit report, such as incorrect account information or fraudulent activity, can negatively impact your credit score. By regularly checking your report, you can catch and correct any inaccuracies.
• How to do it: In addition to reviewing your TransUnion® credit information in the One app, you’re entitled to a free annual credit report from each of the three major credit bureaus through AnnualCreditReport.com. Review these reports for errors, and if you find any, file a dispute directly with the creditor or with the credit bureau to have them corrected. See below for how to contact the credit bureaus.

What should I do if I see errors in my credit report information viewed in the One app?

If you find any inaccuracies in your credit report, you can file a dispute with TransUnion® directly through their website (details below). For contacting the other credit bureaus, refer to the information provided below as well.

Contact information for credit bureau disputes:

Consider freezing your credit for free to better protect yourself 

Freezing your credit report restricts access to your credit file, making it more difficult for identity thieves to open new accounts in your name. You can freeze your credit report for free with each of the three major credit bureaus, and you can lift the freeze whenever you need to apply for credit.

Here’s how you can freeze and unfreeze your credit with each of the three major credit bureaus:

Understanding how your credit score is calculated and how each factor is defined can help you track your score, build healthy habits, and create a plan to take control of your credit. Save this page to use as a reference any time you need a quick credit refresh.