How Is Your Credit Score Calculated?
Your credit score is a number that summarizes your credit history. Lenders use it to assess your riskiness as a borrower and estimate how likely you are to repay a loan.
The exact formula depends on which scoring model is used. The two most common are FICO and VantageScore. No matter the model, your score is based on similar factors, such as your payment history and how much credit you use.
- A credit score is meant to indicate to lenders how risky you will be as a borrower.
- Your score is calculated based on 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 and how much debt you owe.
FICO and VantageScore use this information to generate your three-digit credit score. How the various factors are weighted depends on the company and which model it’s using. (Both companies have different versions of each scoring model, as we’ll discuss below.)
FICO Scores are very commonly used by lenders in the U.S. when considering loan applications.
Here’s how FICO calculates its credit scores for its most commonly used model, FICO Score 8:
| 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 models are VantageScore 3.0 and VantageScore 4.0. The company also offers two newer scoring models, VantageScore 4plus and VantageScore 5.0. Here’s how the two most common models differ in the way they calculate scores:
VantageScore 3.0 breakdown
- Payment history (40%)
- Depth of credit (21%)
- Credit utilization (20%)
- Balances (11%)
- Recent credit (5%)
- Available credit (3%)
VantageScore 4.0 breakdown
- Payment history (41%)
- Depth of credit (20%)
- Credit utilization (20%)
- Recent credit (11%)
- Balances (6%)
- Available credit (2%)
Meanwhile, the VantageScore 4plus model allows consumers to connect their bank account so cash-flow behaviors can be included in the scoring, while VantageScore 5.0 analyzes behavior trends over the last 24 months to make it easier to assess consumers with new or thin credit.
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.
Credit score ranges: What do the numbers mean?
Each credit score range corresponds to a specific credit rating, which has an impact on the borrower’s eligibility for a loan. In addition to meeting a certain credit score minimum to qualify, if your credit score is in the higher ranges, it can also unlock lower interest rates and better terms.
Here’s how lenders typically view different credit scores:
| Credit score | Rating | What it means for borrowing |
|---|---|---|
| 300-579 | Poor | Likely to be denied or pay very high rates |
| 580-669 | Fair | Eligibility may be limited; rates still relatively high |
| 670-739 | Good | More loans become accessible; middle-of-the-road interest rates offered |
| 740-799 | Very good | Qualifying becomes relatively easy; lower rates may be offered |
| 800-850 | Exceptional | Easiest to qualify for loans; may qualify for the lowest available rates |
Different types of loans tend to require different minimum credit scores (though these vary across lenders and loan programs). These aren’t hard-and-fast rules, but the estimated minimum credit scores below tend to be required for the following types of loans.
- Personal loan: Generally 580+
- Mortgage: 620 for conventional loans; as low as 500 for some types of FHA loans
- Auto loan: No minimum, but interest may be high for borrowers with poor or fair credit
FICO vs. VantageScore: What’s the difference?
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.
| FICO Score | VantageScore | |
|---|---|---|
| Who uses it | The majority of U.S. lenders | Some credit card and loan providers; many free credit score monitoring programs |
| Minimum credit history required | Six months | One month |
| Rate-shopping window | 45 days | 14 days |
| Score range | 300 to 850 | 300 to 850 |
| Models used for Fannie Mae/Freddie Mac eligibility | Classic FICO (and soon, FICO Score 10T) | VantageScore 4.0 |
Other differences between the two include:
- FICO Scores are much more popular, with 90% of the top lending institutions in the country using them, according to FICO. 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 provides scores for those borrowers with very limited credit histories, requiring only that you’ve had a credit account open for at least one 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, credit checks made within 45 days usually count as a single inquiry, but with VantageScore, that period is only 14 days. This means your VantageScore could dip more than your FICO score when shopping for mortgage or loan quotes.
What is credit utilization and how is it calculated?
Your credit utilization ratio expresses how much of your available credit is currently in use. For example, if you have a $10,000 total credit limit and have around $3,000 in current revolving debt, your credit utilization ratio would be around 30%.
Many experts recommend keeping your credit utilization ratio below 30% to help keep your credit score healthy (and maintain your ability to keep up with current debts). However, an even lower credit utilization ratio is ideal.
Your credit utilization can be calculated by dividing the sum of all your outstanding revolving balances by the sum of all your credit limits, then multiplying by 100. The formula looks like this:
Credit utilization = (Total balances ÷ Total credit limits) × 100
For instance, if you have one credit card with a $5,000 balance and one credit card with a $15,000 balance, and a total current balance of $7,000 across the two of them, your credit utilization would be 35%. Here’s how that looks using the formula above:
35% = ($7,000 ÷ $20,000) x 100
Cheat sheet: What affects your credit score?
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
- Keeping your credit utilization under 30%
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
- Having accounts sent to collections
What doesn’t affect your credit score?
Credit scores are based on financial data, not personal details. Items that don’t affect your score include:
- Race
- National origin
- Religion
- Age
- Gender
- Where you live
- 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.
How to improve your credit score
If you’re wondering how to improve your credit score, the good news is that, with dedication and perseverance, it’s possible. Here are some of the easiest steps you can take to improve your credit score over time.
-
Pay every bill on time.
Since credit history accounts for the biggest chunk of your score on most models, keeping up with all your payments each and every month is a critical step. Consider setting up autopay to automate the process. -
Don’t close old accounts.
It may seem counterintuitive, but keeping an older account open, and ideally active, can help extend the average length of your credit history — which can boost your score. -
Limit new credit applications.
Applying for a lot of new credit all at once can signal riskiness to lenders. Outside of the rate-shopping windows described above, avoid applying for multiple new credit accounts or loans in a short period of time. -
Diversify your credit mix over time.
So long as you don’t apply for them all in a short period of time, taking on different types of loans — such as installment loans and credit accounts — can help boost your score, too. Over the long run, aim to have a few different types of accounts on your file. -
Dispute errors on your credit report.
At least once a year, review your credit report to ensure that all of the data you find there is accurate. Report any errors or instances of fraud immediately so they can be corrected and/or removed quickly — and minimize the impact to your score. Once your score improves, see what loan rates you qualify for with LendingTree.
How fast can your score change?
Your credit score can change often, especially if you’re borrowing from more than one lender. That’s because different lenders can report changes to the credit bureaus at different times throughout the month.
This means there can be frequent, small changes to your credit score, while larger trends up or down can take weeks or months to notice. Impacts depend on the type of information. For example, hard inquiries, the type that occur when you apply for a new credit card or loan, can stay on your credit report for up to two years, but they usually affect your credit score for only a few months — and the impact to your score is generally minimal, about five to 10 points.
On the plus side, positive information on your credit report, like accounts paid on time, can remain there 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.)
How to monitor your credit score
Tracking your score isn’t just about knowing where you stand. Staying up-to-date can also help motivate you to keep improving your credit score — or make sure you know as soon as possible when it has slipped.
LendingTree’s free credit monitoring tool makes it easy to see the whole picture in one place. When you monitor your credit for free, you’ll get to:
- Relax, knowing that if anything changes, you’ll be notified automatically
- Keep improving your score with the motivation of a job well done
- Track interest rates and loan offers all in the same place, so you can put your hard work … to work
Frequently asked questions
Lenders typically view a credit score of 670 or higher as “good,” while a score of 740 or higher is “very good.” Scores of 800 and above 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. For a VantageScore, you’ll need to have a credit account for only one month.
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.
Paying your bills on time and in full is a key way to improve your score, since payment history makes up the largest share of your credit score. Keeping your total debt low helps, too: aim for a credit utilization ratio of 10% or less.
There’s no set frequency for credit score updates, but they typically happen at least once a month. Your report may be updated several times per month, depending on your accounts.
No, checking your own credit score doesn’t hurt it, regardless of whether you use a free credit monitoring tool or pull your full credit report from one of the major credit bureaus. And checking your score can help keep you informed of changes as quickly as possible.
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