Category: Credit Score

What Is the Method for Calculating Credit Scores?

Before we can answer the big question—Does the method for calculating credit scores seem fair to you? Why or why not?—let’s define how credit scores are calculated.

Admittedly, that can be difficult. Indeed, the formulas for calculating credit scores are not public. Plus, there are all sorts of myths out there about what does (and doesn’t) hurt your credit score. In many ways, the credit-scoring system feels like a secret test, one you’re expected to pass without ever seeing the study guide. Still, there is a method behind the madness, even if it isn’t always transparent.

Let’s start with the basics …

The most widely used formula for determining a credit score is called the FICO score, which ranges from 300 to 850. This score is designed to predict how likely you are to fall 90 days behind on a payment in the next two years.

What Are the Factors that Determine Your Credit Score?

The formulas for determining a credit score are proprietary, but most experts agree that there are about 20 different factors that go into your score, and these factors can be boiled down to five primary categories that do most of the heavy lifting:

Your credit score influences everything from interest rates to job opportunities. But does the method for calculating credit scores seem fair to you? Why or why not?

1. Payment History (35%)

This is the most important factor in your credit score. It considers whether you’ve paid past credit accounts on time, how often you’ve been late, how recently it happened, and how severe the late payments were. The impact of a single missed payment depends on your overall credit history. If your report is otherwise spotless, one late payment may not do much damage, especially if you return to making on-time payments. But a sudden pattern of missed payments after years of reliability can signal financial trouble and trigger a significant drop. On the other hand, if late payments are already common on your report, another one won’t move the needle much. After all, your score is likely already low.

2. Amounts Owed (30%)

This category measures how much debt you’re carrying compared to how much credit you have available. Your score will be stronger if your credit card balances stay below 30% of your limit. (For example, with a $1,000 limit, keeping your balance under $300 will work in your favor.) Going above that threshold can signal financial strain, even if you make payments on time.

Installment loans, like mortgages or auto loans, are also factored in. Newer loans are seen as riskier than older ones because borrowers are more likely to default early on. The logic is simple: if you’ve already paid off most of your mortgage, you’re far less likely to walk away from it. The longer you’ve been making payments, the more invested you are, which means the less risky you appear to lenders.

This takes us to our next category …

Learn how your credit score is calculated and decide for yourself: Does the method for calculating credit scores seem fair to you? Why or why not? 

3. Length of Credit History (15%)

The longer you’ve had credit, the better. Accounts with longevity and a stable history will help your credit score. Every time you open a new account, it lowers the average age of your accounts. But as those accounts age, they start to help your score, assuming you pay them on time and keep the balance below that 30 percent threshold.

4. Credit Mix (10%)

Lenders want to see that you can manage different types of credit responsibly. Ideally, this includes a mix of revolving credit (like credit cards) and installment loans (like a car loan or a credit rebuilder account). Ideally, a mortgage can be added to the mix, but let’s be real: Not everyone can buy a home (and not everyone wants to buy a home, for that matter).

Fortunately, there are other ways to build strong credit.

If you don’t currently have credit cards, or if you have recently declared bankruptcy, open three credit cards here.

And if you’re missing an installment account, which is a key part of your credit mix, the Credit Rebuilder Program offers a simple, credit-building solution that reports directly to the bureaus.

Learn More

The bottom line: having too much credit can raise concerns, but having too little can hurt your score just as much. The credit-scoring models favor borrowers who show they can handle a well-balanced mix of accounts over time.

5. New Credit and Inquiries (10%)

Opening several accounts in a short period of time can raise concerns. Likewise, when lenders check your credit, it leaves a “hard inquiry,” which can temporarily lower your score. That said, don’t worry too much about inquiries into your credit score. For one thing, if you’re shopping for a mortgage or auto loan, multiple inquiries within a short timeframe (usually 14 to 45 days) are often counted as one to avoid penalizing rate shopping. Beyond that, inquiries usually only affect your credit score for about six months.

And this is important: Soft inquiries (checking your own score) don’t affect your credit score away. You can and should monitor your own credit score. But even with transparency tools available, it still begs the question: Does the method for calculating credit scores seem fair to you? Why or why not?

Credit Scores: You Have More Than One!

Now, here’s where things get murky.

The formulas used to calculate your score are proprietary, and they change. You might receive one score from Experian, another from Equifax, and a third from TransUnion. If you request your score directly, you’ll see a “consumer version,” which is often 20 to 40 points off from what a lender sees. If a landlord or auto dealer pulls your score, they’ll see a version tailored to their industry.

In other words, there is no single credit score—just a shifting set of numbers depending on who’s asking and why.

So … Does the Method for Calculating Credit Scores Seem Fair to You? Why or Why Not?

That’s a personal question, and one with plenty of debate. Some believe the system rewards consistency and responsibility. Others argue it punishes people for things beyond their control. One thing is clear: knowing how the system works puts you in a stronger position.

Yes, You Can Usually Keep Your Car

Before we dig into why you might want to replace your car, let’s quickly address the question at the heart of this article: how to file for bankruptcy and keep your car. Whether you file Chapter 7 or Chapter 13, the law includes exemptions that allow you to protect certain property, including your vehicle. If your car’s equity is under the exemption limit in your state, you get to keep it. Even if it’s not, Chapter 13 can allow you to keep the car and pay back the excess value through a court-approved payment plan.

Watch and Learn: What Can I Keep When Filing Chapter 7

So yes, you can usually keep your car when you file bankruptcy. But the more important question might be: should you?

Why Keeping Your Car Might Not Be the Best Option

Before you move forward with how to file for bankruptcy and keep your car, it’s worth asking whether that’s actually the best move for your financial recovery.

Most people filing for bankruptcy are already under intense financial pressure. They’ve fallen behind on payments, drained their savings, and made impossible trade-offs just to get by. And when money is tight, routine car maintenance is one of the first things to go.

That means by the time you file bankruptcy, your vehicle might have:

• • Missed oil changes
  • Bald tires
  • Delayed repairs
  • A loan with sky-high interest
  • Negative equity (you owe more than the car is worth)

But even if you love your car and have taken great care of it, it may not be worth keeping. In many cases, people end up reaffirming their car loan without fully understanding the long-term consequences, so let’s take a look at reaffirmation.

Watch and Learn: What Can I Keep When Filing Chapter 13

What Is Reaffirming Debt?

Reaffirming debt during bankruptcy means you agree to remain legally responsible for a debt even after your bankruptcy is complete. In other words, you’re choosing not to include an otherwise dischargeable debt in your bankruptcy. If you reaffirm your car loan, you get to keep the car, but it also means you’re stuck with the original loan terms, even if they’re terrible.

Reaffirming a bad loan or trying to keep a car that’s falling apart can cost you more in the long run. You’ll be locked into paying for a vehicle that may already have high mileage, mechanical issues, or negative equity. And to make matters worse, reaffirmed debts often don’t report to the credit bureaus, so making those payments won’t even help you rebuild your credit score.

Why Chapter 7 Bankruptcy Is the Perfect Time to Replace Your Car

When you file Chapter 7, your debt-to-income ratio improves almost instantly. That makes you more appealing to lenders, especially those that understand bankruptcy. And because you can’t file Chapter 7 again for another eight years, lenders know you’re a lower risk.

Now, will it be the car of your dreams? Maybe not. But it will likely be reliable, affordable, and a much better deal than continuing to throw money at a car that’s falling apart. And more importantly, it sets you up to qualify for something better down the road, once your credit is fully rebuilt. 

What If You’re in Chapter 13?

If you’re filing Chapter 13, you’re not out of luck. Many people researching how to file for bankruptcy and keep your car are surprised to learn that Chapter 13 actually gives you more flexibility in some cases. Not only can you keep your car in a Chapter 13, but you can also buy a new car. The process looks like this:

1. You find a vehicle that fits your budget.
2. Your attorney submits the proposed financing to your trustee.
3. The trustee approves a monthly payment and interest rate.
4. Financing is finalized, and your car is delivered.

The Smart Way to Replace a Car During Bankruptcy

For many people, replacing a car during bankruptcy feels overwhelming, so it helps to work with a dealership that specializes in providing cars to people who have been through bankruptcy. Some, like Ash Auto Group (which has an online dealership), focus exclusively on helping people in bankruptcy find reliable vehicles, secure financing, and navigate the legal process alongside their attorney and trustee. These dealerships understand the court approval process for Chapter 13 cases, offer warranties and gap insurance, and report on-time payments to help rebuild your credit.

Buying a Car with Ash Auto Group

Real Talk: Why You Shouldn’t Keep a Car That’s Holding You Back

Let’s be honest: if you’re filing bankruptcy, your car might be part of the problem. Maybe it has repairs you can’t afford. Maybe you’re paying 20%-plus interest. Maybe you owe thousands more than the car is worth.

Even if your initial goal was to figure out how to file for bankruptcy and keep your car, bankruptcy can open the door to smarter options. You’re already doing the hard work of resetting your finances. Don’t drag an old problem into your new chapter.

Replacing your car during bankruptcy might not be what you expected, but for many people, it’s the key to getting back on track. You get transportation that works, payments that fit, and a chance to start rebuilding credit immediately.

Why Getting Credit Cards After Bankruptcy Is So Important

To understand why it’s so important to get credit after bankruptcy, let’s start by clearing up a common myth.

Myth: Bankruptcy ruins your credit forever.

The truth is, bankruptcy actually gives you a chance to rebuild. It clears the slate so you can start paying your bills on time, and that’s the key. The credit-scoring formula puts far more weight on what you’re doing now than on what happened in the past. So if you’re making on-time payments today, your score can start climbing quickly.

A lot of people walk away from credit entirely after a financial crisis like bankruptcy. This is understandable, but it’s also a mistake. If you don’t open any new accounts, the credit bureaus have nothing current to measure. That means your report will only reflect the negative history, and your score won’t improve.

But when you open new credit accounts and use them wisely, the credit bureaus finally have something positive to report. And that’s when your score starts to rise.

So yes, you can get credit cards after bankruptcy. And yes, you should!

Open Credit Cards

We know it might feel counterintuitive. After all, why would anyone who just went through a financial meltdown want to open a credit card?

Here’s the thing, though … this isn’t about debt. It’s about rebuilding trust with lenders and credit bureaus.

How to Rebuild Your Credit Score

Think of it like this: Imagine you’re in high school and failed a few tests early in the semester. Your GPA takes a hit. But then you buckle down, study hard, and start earning A’s. What happens? Your GPA climbs, and you might even end the semester with a 4.0.

Your credit score works the same way. You can’t erase the past, but you can add better data. The best way to do that is by opening new lines of credit and using them responsibly. That’s why we recommend opening three credit cards and one installment account after bankruptcy.

This article focuses one opening new credit cards. If you’re curious about installment accounts, check out the Credit Rebuilder Program.

Learn More

Which Credit Cards to Open … And Which to Avoid

That said, not all credit cards are created equal. In fact, some might hurt your score rather than help. In general, you want to open major revolving credit cards (Visa, MasterCard, American Express, Discover) that report your correct credit limit to all three credit bureaus.

When opening new credit cards, don’t:

• Open retail store cards (like Macy’s or Best Buy): These often trap people in debt with high interest and low limits. Plus, why open a credit card that you can use at only one location when you could open a major revolving credit card that you can use at every location?
• Don’t count your debit cards: It’s fine to have debit cards. We all need them. But these cards will not be reported to the credit bureaus since you don’t pay bills or make payments toward them.
• Open cards that don’t report to all three bureaus: Nearly 46% of credit cards either fail to report to all three bureaus or fail to report your limit. Both of these problems can sabotage your score.

Here is a list of credit cards that report the proper limit to all three bureaus

Choosing Between Secured and Unsecured Credit Cards After Bankruptcy

When opening credit cards after bankruptcy, you have three options:

Option 1: Open a traditional credit card

The terms you receive on a traditional credit card will depend on your credit score. If your score is high, you’ll likely qualify for lower interest rates and perks like airline miles, hotel rewards, or cash back.

But if your score is low, expect higher interest rates and annual fees. That said, here’s something that surprises a lot of people …

If you pay your credit card balance in full each month, you can avoid paying interest.

So even if the interest rate is high, it may not matter, as long as you pay your balance in full each month. And once your score starts to rise, you can renegotiate the terms or switch to a better card altogether.

Option 2: Open a secured credit card

Secured credit cards are a popular option for people rebuilding after bankruptcy. Here’s how they work ..

You make a deposit—let’s say $250—and that becomes your credit limit. You still need to make regular payments, and your deposit isn’t applied toward your balance. Instead, you’ll get the deposit back when you close the account, assuming you’ve paid off the card in full.

This might sound like a bad deal, but these cards are often easier to get than traditional credit cards, and they help you rebuild your score. After 12 to 24 months of on-time payments, you’ll be in a better position to upgrade, and you’ll get your deposit back.

Here is a list of credit cards that are most likely to approve applicants with poor credit. These are cards that report to all three major credit bureaus and reflect your actual credit limits, both essential for rebuilding your score.

Option 3: Become an authorized user

Another way to jumpstart your credit rebuilding process is by becoming an authorized user on someone else’s credit card. This means a trusted friend or family member adds your name to their account, and their positive payment history gets added to your credit report, even if you never use the card.

If you know someone with a strong credit history who keeps their balances low and pays on time, it’s worth asking if they’d be willing to add you as an authorized user. And if they’re worried about giving you access to their credit, you can assure them that you don’t need the physical card. They can simply add your name without handing over any spending power.

This is a great way to build your credit without taking on any new debt or paying interest and fees. But a quick heads-up: if the person misses payments or carries high balances, their activity could hurt your score. The good news? If that happens, you can simply ask to be removed from the account, and your score will typically revert, removing the negative impact.

Still, if used the right way, becoming an authorized user can give your credit the boost it needs, helping you qualify for your own credit cards down the line, with better terms and lower rates.

A Tip for Opening Credit Cards After Bankruptcy

This advice might also be counterintuitive, but here goes …

When it’s time to open credit cards after your bankruptcy, try to open them all at once. Here’s why: one factor that affects your credit score is the age of your accounts. The sooner you open new credit cards, the sooner they can start aging and working in your favor.

But if you open one card now, another in a few months, and a third sometime next year, each new account will lower the average age of your credit history. Opening them all at once gives your accounts time to mature together, which helps your score in the long run.

How to Improve Your Credit Score with the Credit Rebuilder Program

How to Use Your Credit Cards to Build Credit

Opening credit cards isn’t enough. You have to use them wisely. Follow these four rules to make sure your new credit cards actually help your score:

1. Keep them active. Use each card for one small, consistent bill each month. Aim for something under fifty dollars, like a subscription or a utility payment.
2. Pay them off in full. Try not to carry a balance. When you pay your statement in full each month, you avoid interest charges completely.
3. Stay under thirty percent of your limit. Even if you pay your balance off every month, try not to let your balance go above thirty percent of your credit limit at any time. Credit-scoring bureaus pay close attention to your balance-to-limit ratio. If your balance gets too high, even for a short time, it can signal financial stress and lower your score. Keep your balance under thirty percent, and closer to ten percent if possible.
4. Never miss a payment. One late payment can undo a lot of progress. If you’re having trouble making a payment, call your credit card company before the due date and ask for an extension. Many companies are willing to work with you if you reach out in advance.

If You’re Married, Apply Separately

If you are married, each spouse should apply for three credit cards after bankruptcy in their own name. Do not apply jointly. Why?

Because unexpected events can impact your finances. Job loss, medical bills, or other emergencies can make it hard to keep up with payments. If all credit cards are joint accounts, a single crisis can hurt both credit scores at the same time.

On the other hand, building credit separately gives couples more flexibility and protection.

Take Joe and Robin as an example. Imagine Joe loses a job, and Joe and Robin’s household can no longer afford to pay all the bills. If Joe and Robin have joint credit cards, missed payments will damage both of their credit scores. But if they each have their own accounts, they can make a strategic decision to prioritize Robin’s bills. Joe’s accounts might temporarily fall behind, but Robin’s credit will stay strong.

That strong credit score can help the couple qualify for a car loan, refinance a mortgage, or access lower interest rates if needed. It gives them options during a difficult time. When Joe is ready to rebuild, Robin can add Joe as an authorized user on one of her credit cards. This gives Joe a boost from Robin’s positive payment history and makes it easier for Joe to start improving his own score.

By building credit separately and opening three new credit cards each, Joe and Robin protect their household from future setbacks and set themselves up for a faster recovery if challenges arise.

Final Thoughts: You Can, and Should, Get Credit Cards After Bankruptcy

Getting credit cards after bankruptcy is essential. It’s the first and most important step to rebuilding your credit and regaining your financial freedom.

If you follow the right steps, avoid common traps, and use your cards responsibly, your score can rise, sometimes dramatically, in just 12 to 24 months.

So don’t wait. Visit www.720CreditCards.com, pick the cards that work for you, and start building the future you deserve.

Your Credit Score Isn’t a Fixed Number

Here’s something that might surprise you: You don’t have a single credit score. You have many. At any given moment, your credit score depends on two things:

1. Who’s requesting it, and
2. Which credit bureau is reporting it.

Let’s break those two factors down.

Who Is Requesting Your Credit Score, and Why Does It Matter?

Your credit score is a three-digit number that answers this question: What is the likelihood that a borrower will be more than 90 days late on a bill within the next two years?

To answer that question accurately, lenders often use specialized versions of your credit score designed for their specific industries. Most of them use a formula called FICO, but the formula is tailored a bit based on their industry.

For example:

• Landlords tend to care more about your history with housing-related payments—like mortgages or past evictions—than your credit card habits. After all, someone might occasionally pay a credit card late but always pay rent on time. So rental screening services may highlight different aspects of your credit report than a bank or credit card issuer would.
• Auto lenders might use a version like FICO Auto Score, which gives more weight to your history with car loans.
• Credit card issuers might use the FICO Bankcard Score, which weighs revolving credit (like credit cards) more heavily.

When you check your own score you’ll receive a different, more generalized version of your credit score. Like most companies selling or providing credit services directly to individuals—including Credit Karma, Credit Sesame, and Capital One CreditWise—Credit Hero Score uses the Vantage 3.0 formula. This model is designed to give consumers a clear picture of their credit standing, but it’s not the exact score lenders see and it isn’t based on the FICO formula.

Which Credit Bureau Is Requesting Your Credit Score, and Why Does It Matter?

To add one more layer of complexity: each bureau—Equifax, Experian, and TransUnion—may have different information about you, because not all creditors report to all three bureaus. You might, for instance, have a credit card that reports payments to Experian and Equifax but not TransUnion, which means TransUnion would be plugging different data into its formula to calculate your score.

That’s why lenders who pull your FICO score will be given three different scores. Lenders usually look at all three scores and use the middle one to make their lending decisions. So, if your scores are …

• 721 from Experian
• 680 from TransUnion
• 612 from Equifax

…your lender would go with 680.

What Is Credit Hero Score?

Credit Hero Score is a credit monitoring service that helps people track their credit health. It gives users access to their credit reports, credit alerts, and a score based on the VantageScore 3.0 model, a widely used formula for consumer credit tracking. This model is designed to give consumers a general picture of their credit standing.

Credit Hero Score is not the only company that offers credit services directly to consumers. Credit Karma, Credit Sesame, Capital One CreditWise, and even Experian also provide consumer-based credit scores. It bears repeating: These scores do not use the same scoring formula that lenders typically rely on. Instead of a FICO score, they use the VantageScore 3.0 model.

This means that while the Credit Hero Score can provide a useful overview of your credit behavior, it won’t necessarily reflect the score a lender sees when they review your application for a mortgage, car loan, or credit card. It’s a general indicator of your credit health, but it is not a substitute for a lender-grade FICO score.

How Can You See the Same Thing a Lender Sees?

Your best bet for seeing the version of your FICO score that lenders actually use is to either:

1. Pay for it yourself at MyFICO.com, or
2. Ask a lender to pull your score as part of a credit application or pre-approval.

Let’s look at the pros and cons of both options.

Option 1: Pay to See Your Scores at MyFICO.com

MyFICO.com is operated by the creators of the FICO scoring model. When you purchase your scores here, you’ll get access to:

• Your FICO Score 8, commonly used by credit card companies
• Industry-specific scores like FICO Auto Score and FICO Bankcard Score
• The older FICO versions still used in mortgage lending (FICO 2, 4, and 5)

This is the most direct way to see exactly what lenders are likely to see—without needing to apply for credit. But there are pros and cons …

Pros:

• You will not hurt your credit score if you request your own credit score. This is called a soft inquiry.
• You will see a full breakdown of scores from all three bureaus
• It includes industry-specific FICO versions used in real-world lending decisions

Cons:

• It’s not free. You’ll pay anywhere from $20 to $40+ per month depending on what you need.
• It can feel overwhelming because you’ll see many variations of your credit score. You might not know which one will apply to your specific situation.

Option 2: Ask a Lender to Pull Your Scores

If you’re preparing to apply for a mortgage, auto loan, or major credit product, you can ask a mortgage broker or lender to pull your scores as part of a pre-approval or application process.

Lenders typically pull your FICO scores from all three credit bureaus, using the versions relevant to their industry (for mortgages, this means FICO Score 2, 4, and 5).

You can ask the lender to share:

• The scores they pulled
• The FICO version used
• Which bureau reported which score

Pros:

• You’ll see the exact scores the lender will base their decision on
• This will be free if it’s part of a pre-approval or formal application
• The score you see will be useful if you’re actively preparing to borrow

Cons:

• This is a hard inquiry, which may cause a small, temporary dip in your score, though your score will recover in about six months, and the dip will be just a few points.
• Not all lenders will pull your scores unless you’re moving forward with a real application.

What the Credit Hero Score Rewards (and What It Penalizes)

That said, whether you’re looking at your Credit Hero Score, a VantageScore from another platform, or even a lender’s FICO score, the fundamentals are the same. All scoring models reward certain credit behaviors and penalize others.

Here’s what helps your score most:

• Paying on time, every time
• Having a healthy mix of credit, which includes three to five credit cards and an installment account
• Keeping your balances low (below 30 percent of your credit limit)
• Keeping your credit card accounts active, which means you use them (without going above that 30 percent threshold)
• Removing errors from your credit score

And here’s what tends to hurt your score:

• Late payments, missed payments, or collections
• Maxed-out or high-balance credit cards
• Errors on your credit report
• No credit, not enough credit, or no mix of credit
• Having too many accounts
• No credit activity at all (no reporting = no score movement)

If your goal is to rebuild your credit, these are the habits that matter most. And they’re the same habits that will help raise any score, whether it’s FICO or Credit Hero Score.

Box: Want to learn more about building your credit score FAST? Check out the Credit Rebuilder Program.