How Is Your Credit Score Calculated?
Your credit score is a number that estimates how likely you are to repay a loan. Lenders use it to determine your riskiness as a borrower. But what is a credit score based on?
The exact formula depends on whether the score is from FICO or VantageScore, the primary scoring models, or provided by another company. No matter the model, your score is based on similar factors, such as how much debt you’ve repaid in the past and how much credit you use now. Paying your existing loans and credit cards on time each month is a key step to maintaining a healthy credit score.
- A credit score is meant to tell lenders how risky a borrower you are.
- Your score is calculated from information on your credit report, such as your payment history and how long you’ve had credit accounts.
- Credit scores range from 300 to 850, with higher scores being better.
How is a credit score calculated?
Your credit score is based on data from your credit report. Credit reports are prepared by the three major credit bureaus — TransUnion, Experian and Equifax — and they contain your past borrowing and payment history, the number and kinds of credit accounts you have now and how much debt you owe.
FICO and VantageScore use this information to generate your three-digit credit score. How the different factors are weighted depends on the company and which model they’re using.
FICO scores are very commonly used by lenders in the U.S. when considering loan applications.
Here’s how FICO calculates its credit scores:
| Credit factor | Weight | What this means |
|---|---|---|
| Payment history | 35% | Whether you’ve paid past credit accounts on time |
| Amounts owed | 30% | How much of your available credit you’ve used |
| Credit history length | 15% | How long your credit has been established |
| New credit | 10% | How many new credit accounts you’ve opened recently |
| Credit mix | 10% | How many different types of credit you have on your account |
VantageScore’s most widely used scoring model (VantageScore 3.0) calculates its credit scores like this:
- Payment history (40%)
- Depth of credit (21%)
- Credit utilization (20%)
- Balances (11%)
- Recent credit (5%)
- Available credit (3%)
VantageScore’s newer scoring model (VantageScore 4.0) does things a bit differently, figuring scores this way:
- Payment history (41%)
- Depth of credit (20%)
- Credit utilization (20%)
- Recent credit (11%)
- Balances (6%)
- Available credit (2%)
Whether you’re looking at your FICO Score or VantageScore, the most important things you can do are pay your bills on time and keep your credit utilization low. These two factors carry the most weight and can have the biggest impact on your score. Just as importantly, they require consistency — your credit score is less about perfection and more about building healthy patterns over time.
FICO vs. VantageScore
Most credit scores used by lenders in the U.S. come from either FICO or VantageScore. Both use information from your credit report to determine your score, but with slightly different scoring formulas.
For example, payment history accounts for 40% or more of a VantageScore credit score but only 35% of a FICO credit score.
Other differences between the two include:
- FICO credit scores are much more popular, with 90% of the top lending institutions in the country using them. But VantageScore’s prominence is growing, and its newest score model is allowed to be used for all mortgages guaranteed by Fannie Mae and Freddie Mac.
- VantageScore also gives scores for those borrowers with very limited credit histories, requiring only that you’ve had a credit account open for at least a month. To get a FICO score, you must have at least one active credit account open for at least six months.
- The two companies also treat new credit inquiries differently. With FICO, all credit checks made within a 45-day period usually count as a single inquiry, but with VantageScore, the period is only 14 days. This means your VantageScore could dip more than your FICO score when shopping around for mortgage or loan quotes.
How credit scores work
There’s no starting credit score, so you must start your credit journey before you begin to maintain a score. Your credit score will then go up or down based on your actions.
Lenders use credit scores to help them figure out what kind of borrower you’ll be and how likely you are to repay your debt. They may turn to credit scores from FICO, VantageScore, another scoring company or their own in-house models.
Credit scores are used when you apply for a mortgage, auto loan, student loan, credit card, home equity loan, personal loan, small business loan or credit line increase. Mobile phone carriers, cable and utility companies and landlords may use them, as well.
FICO and VantageScore credit scores usually appear as a three-digit number between 300 and 850, with higher scores considered better.
Here’s how lenders typically view different credit scores:
| Credit score | Rating |
|---|---|
| 300-579 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very good |
| 800-850 | Exceptional |
What affects your credit score? Cheat sheet
Now that you’ve seen the ways the most popular types of credit scores are calculated, you can begin to take steps to improve your credit score — and avoid actions that could hurt it. The cheat sheet below illustrates how common behaviors might impact your credit score.
Helps your credit score
- Making on-time payments
- Avoiding carrying high credit card balances
- Maintaining your credit for long periods of time
- Having different types of credit products, such as installment loans and credit cards
Hurts your credit score
- Making late payments or missing payments entirely
- Carrying high credit card balances
- Closing old accounts (which shortens credit history)
- Opening many new credit accounts in a short time
What doesn’t affect your credit score?
While credit scores are based on your financial data, they don’t look at other personal details, like your race, national origin, religion, age or gender, as well as where you live or your profession.
Although details about your income and employment history are also excluded from most credit scores, lenders will almost always consider how much you earn before approving you for credit.
Find out where your credit score stands and learn personalized tips for improving it — for free — with LendingTree Spring.
How fast can your credit score change?
Your credit score can change often, especially if you are borrowing from more than one lender. That’s because different lenders can report changes to the credit bureaus at different times throughout the month.
That means there can be small changes to your credit score frequently, while larger trends up or down can take weeks or months to notice. The good news is that positive information, like accounts paid on time, can remain on your report indefinitely, even after the account is closed. Meanwhile, most types of negative information fall off after seven years. (Bankruptcies, however, can stay on your report for up to 10 years.)
Frequently asked questions
Lenders typically view a credit score of 670 or higher as good, while a score above 740 is “very good.” Scores above 800 are described as “exceptional” or “excellent.”
You need at least one credit account open for six months (and reported to a credit agency within the last six months) to get a FICO credit score.
To build your credit file, you could become an authorized user on another person’s credit card or apply for products designed for people with no credit history, like student loans, student credit cards or secured credit cards.
Responsibly managing your debt raises your credit score. The most important way to do this is by paying your bills on time and in full, since payment history makes up the largest share of your credit score. Also, try to keep the total amount of debt you owe low, and aim for a credit utilization ratio of 10% or less. This tells the credit-scoring models you can handle making your monthly repayments.
At the same time, try to have both installment loans (like a mortgage or car loan) and a revolving line of credit (like a credit card) for a good credit mix.
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