Credit has become such a big part of our lives, from buying a house or car to obtaining health insurance and undergoing employment background checks. There’s no denying credit is important. Here’s why.

How Your Credit Score is Calculated

There are standard credit scoring models that analyze one of your consumer credit reports and then assigns a score (often ranging from 300 to 850) using complex calculations. FICO and VantageScore are the two main consumer credit scoring models.

When your credit scores are calculated, there are several factors examined and each factor carries a certain weight.

Your score can also vary depending on the type of credit score and which credit report from the three national credit bureaus is used when calculating the scores.

Payment history, credit history, your credit mix (meaning the various types of credit you have), amounts owed and new credit are the factors looked at under the FICO scoring system.

Good Score, Bad Score

For a score with a range between 300 and 850, a credit score of 700 or above is considered good. If you have a score of 800 or above on the same range, it would be considered to be excellent.

Black Americans typically have lower levels of creditworthiness than other racial groups. About 54 percent of Black Americans report having no credit or a poor to fair credit score, according to a recent survey of 5,000 U.S. adults by Credit Sesame. Compare this to 37 percent of white Americans who report having bad or no credit. 

“While the credit system was created to be blind, this data shows that Black and Hispanic Americans are being unfairly shut out of the system,” Jay Moon, general manager of credit at Credit Sesame, said in a statement.

High student loan debt among Blacks plays a factor in lower credit score ratings.

To read more about how to improve your credit score, click here.