How Credit Scores Are Calculated
A credit score is a three-digit summary of the information in your credit reports. Knowing what goes into it makes it far less mysterious and shows where your effort matters most.
Key takeaways
- Credit scores are calculated from the information in your credit reports, not from your income or savings.
- For FICO scores, payment history and amounts owed carry the most weight.
- You have many credit scores, not one, because there are several scoring models and three nationwide credit bureaus.
- Checking your own credit does not lower your scores.
Where credit scores come from
Your credit score starts with your credit reports. Lenders and other creditors send information about your accounts, including balances, credit limits, payment history and when each account was opened, to the three nationwide credit bureaus: Equifax, Experian and TransUnion. Each bureau keeps its own report on you, and the three are not always identical, because not every lender reports to all of them.
A scoring model is a formula that reads one of those reports and produces a number meant to predict how likely someone is to fall seriously behind on payments. The best-known model families are FICO and VantageScore. Their most widely used versions score on a range of 300 to 850, and higher scores indicate lower predicted risk.
The five main factors
FICO publishes general weightings to explain how its scores treat the information in a report. For the general population, it describes the categories roughly like this:
| Factor | Approximate weight | What it looks at |
|---|---|---|
| Payment history | 35% | Whether you pay on time, and how late any missed payments were |
| Amounts owed | 30% | Balances, especially credit card balances compared with their limits |
| Length of credit history | 15% | How long your accounts have been open |
| New credit | 10% | Recently opened accounts and recent hard inquiries |
| Credit mix | 10% | The variety of account types, such as cards and installment loans |
These weights are a general guide, not an exact recipe. How much any one detail matters depends on everything else in your report. VantageScore uses similar ingredients but groups and weighs them differently.
Payment history
Paying on time, every time, is the single most influential habit. A payment is generally reported as late once it is 30 days or more past due, and later stages such as 60 or 90 days late are treated as more serious. Accounts sent to collections, repossessions and bankruptcies also weigh heavily.
Amounts owed and credit utilization
This category looks at how much you owe, with particular attention to credit utilization: your credit card balances divided by your credit limits. If you have $2,000 in balances across cards with $10,000 in total limits, your utilization is 20 percent. Lower utilization generally helps. A common rule of thumb is to keep it below 30 percent, and lower tends to be better. Because utilization is based on the balances that get reported, paying a card down before the statement closes can lower the figure the bureaus receive.
Length of credit history
A longer history gives a scoring model more to evaluate. This is one reason to think carefully before closing your oldest card: closing it reduces your total available credit, which can raise your utilization, and over time it can shorten the average age of your accounts.
New credit
Opening several accounts in a short time can signal risk, particularly for people with short credit histories. A hard inquiry may lower a score slightly for a while. Hard inquiries remain on a credit report for up to two years, but FICO scores consider only those from the last 12 months.
Credit mix
Experience with both revolving credit, such as credit cards, and installment loans, such as an auto loan, can help a little. It is rarely worth taking on debt you do not need just to change your mix.
What credit scores do not consider
Scores are built only from credit report data. FICO states that its scores do not consider your race, color, religion, national origin, sex, marital status or age, and they do not include your salary, occupation, employer or employment history. Lenders may still ask about your income and assets when you apply. They simply evaluate that information separately, often through measures like your debt-to-income ratio.
Why you have more than one score
It is normal to see different numbers from different places. A score depends on which bureau's report was used, which model and version calculated it, and when it was pulled. Some lenders also use versions built for specific industries. FICO's auto and bankcard scores, for example, use a wider range of 250 to 900. Mortgage lenders often rely on particular score versions required by the loan programs they offer.
So rather than chasing one exact number, focus on the habits every model rewards: on-time payments, low balances compared with your limits, and only the new credit you actually need.
How long information stays on your report
Most negative information, such as late payments and accounts in collection, can remain on your credit report for about seven years. Some bankruptcies can remain for up to ten years. Positive information, like an account paid as agreed, can stay longer. The encouraging part is that the influence of older negative items generally fades with time, especially as newer, positive history builds up behind them.
Helpful official resources
Independent government and official sources. Prequalee is not affiliated with any of these organizations.
- AnnualCreditReport.comThe source for free credit reports authorized by federal law.
- Consumer Financial Protection BureauThe U.S. government agency dedicated to consumer financial protection.
- Federal Trade Commission consumer adviceConsumer guidance from the nation's consumer protection agency.
- IdentityTheft.govThe federal government's resource for reporting identity theft.
This guide is general educational information, not financial or legal advice. Lending criteria vary by lender and loan type, so confirm details with any lender you are considering. Spotted something that needs correcting? Email info@prequalee.com.
