How is Your Credit Score Calculated?
At a Glance
Your credit score plays a significant role in helping lenders determine whether you qualify for a type of credit (like credit card or loan), as well as the interest rate and terms you qualify for. Your score shows lenders how risky of a borrower you are, which helps them decide whether they will accept your application.
Whether you’re actively shopping for a loan or credit card or simply want to improve your score for future financial reasons, it’s important to understand how your credit score is even calculated. This can help you understand what to do to maintain it or improve it over time.
Learn more about:
What is a credit score?
A credit score is a three-digit number, ranging from 300 to 850, that is used to determine your creditworthiness and risk to lenders. Typically, the higher your score, the more likely you are to be able to repay loans or pay off credit card debt. This makes it easier to qualify for loans and credit cards, as well as get better interest rates and loan terms.
Alternatively, the lower your score, the riskier you appear to lenders. This can make it more difficult to qualify for lending products or credit cards, and you’ll likely be offered higher interest rates which can make debt more difficult to manage.
There are three credit bureaus that calculate your credit score: Experian, Equifax, and TransUnion. Each calculates your score differently, and lenders may use different scores for different reasons. The most commonly used credit score is FICO, though some lenders may use VantageScore or another scoring model.
Related: Guide to Credit Score
What makes up a credit score?
There are several factors that make up your credit score, all deriving from information found in your credit report. Again, there are different scoring models and scores out there, but FICO typically considers:
| Factor | Percentage of Score |
|---|---|
| Payment history | 35% |
| Used vs. available credit | 30% |
| Length of credit history | 15% |
| Credit mix | 10% |
| Credit inquiries | 10% |
How do these factors affect your credit score calculation?
| Factor | How it impacts your credit score |
|---|---|
| Payment history |
|
| Used vs. available credit |
|
| Length of credit history |
|
| Credit mix |
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| Credit inquiries |
|
What isn’t included while calculating credit scores?
While several factors are used to calculate your credit score, there is some personal and other financial information that is not used to determine your score. Note that some of this may appear on your credit report, but do not impact your score, including:
- Age
- Sex/gender
- Race/nationality/ethnicity
- Area of residence
- Income
- Employment status or job title
- Assets
- Religion
- Political affiliations
- Marital status
- Interest rates you have on existing accounts
- Whether you’ve used credit counseling or received public assistance
Additionally, any information that doesn’t appear in your credit report is not used.
How can you maintain your credit score?
Knowing and understanding the factors that play a role in calculating your credit score can help you learn how to maintain and even improve your score.
Do:
- Check your credit score regularly to ensure your credit report is error-free and know ways you can improve your score.
- Make all payments on time.
- Pay your bills in full, if possible, vs. just making the minimum payments.
- Maintain a low credit utilization ratio, keeping your “used” credit balance low and “available” credit balance high.
- Maintain a healthy credit mix.
Don’t:
- Make late or missed payments.
- Carry a balance on credit cards from month-to-month.
- Close credit card accounts.
- Open too many new accounts, especially within a short time frame.
- Spend more than you can afford.
FAQs
Credit bureaus and lenders use their own credit scoring models, so it will be difficult for you to calculate your own score with accuracy. However, you can determine some factors that affect your score, such as credit utilization ratio, length of history, and credit mix.
You can get a free copy of your credit reports from each credit reporting company every 12 months by visiting www.annualcreditreport.com. Some banks, credit cards, and lenders also allow you to check your score for free through your account.
A late payment will typically fall off your credit report seven years from the original missed payment date. Hard inquiries stay on your report for two years, but they only impact your score for one year. Your length of credit history will impact your score for as long as your oldest account is open.
No, each of the three credit bureaus has different scoring models used to calculate a credit score. However, the most used score by lenders is FICO.
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