How Your Credit Score Is Calculated

by Matt Frankel, CFP® | Updated Sept. 22, 2021 - First published on Sept. 21, 2018

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Man and woman looking at credit report

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Here’s what we know about where your credit score comes from.

Higher credit scores can give you access to the best credit card offers, help you get lower interest rates on mortgages and other loans, and can even make your car insurance rates go down. However, many people don’t know where their credit score comes from. With that in mind, here’s an overview of what credit score you should be looking at, how it is calculated, as well as what information is not included in your credit score. 

What does “your credit score” actually mean?

To be perfectly clear, there is more than one kind of credit score. In addition to the FICO® Score, there’s the Vantage Score, the PLUS Score™ by Experian, the TransRisk New Account Score by TransUnion, and more.

However, the FICO® Score is the industry standard, and by a wide margin. In fact, the FICO® Score is used in more than 90% of lending decisions and is so popular that other types of scoring are often referred to as “FAKO” scores.

In fairness, the other scoring models I mentioned can do a great job of letting you know approximately where you stand. However, it’s tough to make the case against the score that the people making lending decisions are probably going to be looking at. So, for the rest of this discussion, you can assume the term “credit score” is referring to the FICO® Score.

What’s included in your FICO® Score?

We don’t know the exact makeup of the FICO® Score. In other words, there’s no way to know exactly how much your score will be affected if you apply for a new credit card or pay off $1,000 of credit card debt.

However, we do know the broad outline. The FICO formula is made of five categories of information, each with a different weight:

Category % of Your Score
Payment history 35%
Amounts owed 30%
Length of credit history 15%
New credit 10%
Credit mix 10%

Data source: myFICO.

FICO® Scores range from a low of 300 to a maximum of 850, with higher scores being better. The average score is about 700, while scores above 740 are considered to be very good and scores above 800 are widely considered to be exceptional.

What do each of these categories mean?

Here’s a rundown of what each category means:

  • Payment history, the largest category, is pretty self-explanatory. Creditors want to see an established history of paying your bills on time. If you pay your obligations on time every month, this category will be a big help to your score. Conversely, if you have missed payments, collection accounts, legal judgments, or bankruptcies on your credit report, it will hurt this category’s influence on your score.
  • Amounts owed is a little less straightforward. Contrary to what it may sound like, this doesn’t place too much weight on the dollar amounts you owe -- in other words, a $1,000 debt isn’t necessarily worse than a $100 debt. Instead, the key factors here are how much you owe relative to your available credit on revolving accounts and how much you owe relative to your original loan balances on installment accounts. It also takes into account things like how many different accounts have balances and considers different types of accounts differently.
  • Length of credit history, in addition to referring to the overall time length of your credit history, also includes the ages of each individual credit account, the age of your newest account, and the average age of all of your credit accounts. In addition, this category also includes how long it’s been since you used each account.
  • New credit considers two things. It includes how many new credit accounts you’ve opened, as too many new accounts can be a big red flag for creditors. In fact, some creditors will reject applications from otherwise stellar applicants simply because they’ve opened too many accounts recently. This category also includes how many times you’ve applied for credit in the past 12 months.
  • Credit mix refers to the different types of credit accounts you have. The reason for this category is that lenders want to know that you can manage several types of credit responsibly -- not just one or two. For example, a strong history with credit cards, mortgages, auto loans, and loans could be better than a strong history with only credit cards.

What's not included in your FICO® Score?

Another important point is that any information that isn’t included in these categories is not a part of your FICO® Score. For example, it’s a common myth that your salary is a key factor in your credit score, but this is 100% false.

Other information that has no impact on your FICO® Score includes, but is not necessarily limited to:

  • Race and religion
  • Sex
  • Marital status
  • Age
  • Employment history
  • Where you live
  • The interest rates you’re paying on credit accounts
  • Child support obligations
  • When you check your credit report
  • Promotional inquiries -- such as pre-approved credit offers
  • Participation in credit counseling

A well-guarded secret

The exact FICO formula is a closely-guarded secret, but by knowing the categories of information included in your score -- as well as what’s not included -- you can be well-positioned to make financial decisions that could maximize your score.

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