How your credit score is calculated

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FICO, the most widely used credit scorer, collects your financial information from the three major credit bureaus, Experian, Equifax and TransUnion. It then assigns a score somewhere between 300 and 850.

The credit bureaus have different criteria for collecting data, so your score may vary slightly between the three. If you don't know your credit score, you can easily get a free look using a company such as Credit Sesame.

FICO bases scores ranging from "very poor" to "exceptional" on these five things:

  • Your payment history: It counts toward 35% of a FICO score.
  • Your credit utilization: It counts toward 30%.
  • The length of your credit history 15%.
  • Your credit mix: 10%.
  • New credit: 10%.

As you can see, the categories vary in importance. Let’s take a closer look at each.

1. Payment history

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Since payment history carries the most weight, it’s crucial to make your credit payments on time. Even one late payment has a negative impact, and it could stay on your record for up to seven years. It becomes less important over time if you catch up on your bills and stay current.

Debts that go into collection are even more damaging, so don’t make your creditors come after you. Call them at the first sign of trouble, preferably before bills are due or late.

Many lenders will work with you on a repayment plan or schedule a more convenient due date. Taking out a debt consolidation loan with the help of a company like Credible also can help you get your debt under control — and help bolster your credit score.

2. Credit utilization

A debt-to-credit ratio compares how much credit you’re using to how much you have available. To calculate it, add up all your balances owed. Next, add up all your spending limits. Divide the first total by the second to get your utilization rate.

Creditors frown on ratios above 30%. If your spending limit on a card is $6,000 and your balance is $2,500, your utilization rate is 42%. That will hurt your credit score.

Zero to 10% utilization is ideal, so work to pay down your balances before you incur more debt. And don't be too quick to cancel credit cards, because that can shrink your available credit and potentially raise the percentage of credit that you're utilizing.

3. Length of credit history

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There's another good reason not to be too eager to close accounts, even after you've made the very last payment: Lenders prefer doing business with borrowers who have experience with credit.

FICO factors in the average age across all your accounts and the age of the oldest one. Provided your record is squeaky-clean, maintaining long-term relationships with creditors improves your credit score.

4. Credit mix

The mix of credit you're using doesn't carry as much weight as the first three categories, but it's worth keeping in mind.

Lenders like to see that you can manage different types of accounts responsibly. A healthy mix might include a mortgage, a car loan, a personal loan, and two or three credit cards.

5. New credit

Happy man showing his new credit card
stockyimages / Shutterstock

New credit also is a lesser factor in determining your credit score, and it's one that can either help or hurt your score.

A new account can raise the amount of credit you have at your disposal — and help hold down your credit utilization. But a flurry of credit applications all at once may set off alarm bells. Lenders will wonder if you got sacked at work or are living beyond your means.

If you’re trying to build a more robust credit mix and boost your score, do it gradually. Don’t apply for a mortgage, a car loan and three credit cards all at once.

Other things that may or may not influence your credit score

Your FICO score does not reflect your assets, income, occupation or age.

Your history of paying utilities, phone bills and other expenses didn’t used to have any bearing, but that could change. Experian, for one, now offers to factor in monthly bill payment, if it will improve your score.

With Experian Boost™ you can boost your FICO score instatntly by paying your monthly bills like utilities, streaming services, and more.

When you apply for new credit, lender inquiries can slightly, temporarily ding your score. It typically rebounds after you’ve paid on time for a few months. Meanwhile, checking your score on your own has no impact.

VantageScore: An alternative to FICO

Happy man showing his new credit card
Courtesy of VantageScore

Another credit scoring model called VantageScore is catching on. Its criteria are similar to FICO’s, but the categories are weighted differently.

Here's how the latest VantageScore version, VantageScore 4.0, is calculated.

  • Payment history: It counts toward 41% of a VantageScore.
  • Credit utilization: It counts toward 20%.
  • Credit history and mix: 20%.
  • New credit: 11%.
  • Credit balances: 6%.
  • Available credit: 2%.

VantageScore 4.0, introduced in 2017, places less significance on past credit behavior. You’ll love that feature if you have a tarnished record but have changed your ways.

VantageScore’s website advises keeping your debt-to-credit ratio under 30%, diversifying account types, and keeping accounts in good standing and open for as long as possible.

In several ways, VantageScore is more generous than FICO. Scores are not affected by paid or unpaid collections of less than $250. Accounts that took a hit during a natural disaster are not taken into consideration.

Knowing the score — and keeping it nice and high — could make all the difference in the quality of your financial life. Again, you can get a free credit score — plus credit monitoring — from Credit Sesame.

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About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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