How is Your Credit Score Calculated?
Key points about: what factors go into your credit score
Generated by a mathematical algorithm, your credit score is a three-digit number (typically between 300 and 850) based on the information in your credit report.
Five factors go into a credit score: payment history, amounts owed, length of credit history, new credit inquiries, and credit mix.
Each factor weighs differently on your score, with a higher score indicating more creditworthiness.
A good credit score may qualify you for more credit and lower interest rates. A lower credit score may hurt your chances when you apply for a credit card or loan and may result in a higher interest rate if you’re approved.
Did You Know?
Your credit score gets generated using a credit scoring model (mathematical algorithm) that quantifies the information in your credit report (your borrowing and repayment history). The three-digit number helps lenders determine how likely you are to pay back debt and whether to extend you credit. The typical credit score range is between 300 and 850, with a higher score indicating greater responsibility with credit.
You have a credit report with each of the three major credit bureaus (credit reporting agencies that record your financial data). And because you have more than one credit report, you also have more than one credit score. In addition, each of your lenders may report your account activity to different credit bureaus; that means the information on your credit report may vary by credit bureau. And depending on which credit bureau your credit score comes from, your credit scores may vary, too. But exactly what kind of data goes into your credit score? Let’s break it down.
What information goes into your credit score?
Because the data on your credit report determines your credit score, it can help to understand precisely what information from your report influences your score and by how much. Five financial categories factor into your credit score: payment history, amounts owed, length of credit history, new credit inquiries, and credit mix. Each weighs differently on your credit score calculation. The more you understand how each factor influences your score, the easier it becomes to build positive credit history.
- Payment history: Payment history accounts for 35% of your credit score, making it the most influential factor. Your payment history reflects your payment patterns over time to measure how consistently you pay back debts like credit cards and loans. A solid payment history shows creditors they can trust you to repay your debt. On the flip side, if your payment history includes late or missed payments, you may appear untrustworthy to a credit card issuer or other financial institution.
It’s essential to make all payments on time. Even one late payment can negatively impact your credit score. Consider setting up automatic payments or reminders using a mobile banking app. Whether an installment loan or revolving credit account, making payments on time is one of the best things you can do to keep a good credit score.
- Amounts Owed: The amount of debt you have (or credit utilization) influences 30% of your credit score. Your credit utilization is calculated based on the total amount you owe across all your credit accounts divided by your total available credit—called your credit utilization ratio.
The lower your credit utilization ratio, the higher your credit score. If amounts owed on your credit accounts are high compared to your total available credit, lenders might think you’re taking on more debt than you can handle. To avoid this, you can keep your credit account balances in check by making payments as early and often as possible.
- Length of credit history: Your credit history shows the length of time you’ve been using credit, which can account for up to 15% of your credit score calculation. The longer you’ve had credit, the more established your credit history and the more credit references and accounts lenders can use to assess your creditworthiness. A long credit history also shows you can manage credit over time. That means keeping accounts open (especially your oldest accounts) can help your credit score if they remain in good standing.
- New credit: Your new credit includes both recently opened accounts and new credit inquiries and typically makes up 10% of your credit score. Establishing new credit can help your credit score if managed responsibly. But when you first apply for credit, a lender may request a copy of your credit report, which can temporarily impact your credit score. And opening several new credit accounts or making too many inquiries at once may appear like you’re struggling to manage your finances, which can mark you as a credit risk.
- Credit Mix: Your credit mix makes up a small portion of your credit score—about 10%. However, it’s still a factor worth considering, as lenders may view a well-rounded borrower more favorably. Generally speaking, lenders prefer to see a combination of installment credit (like an auto loan or student loan) and revolving credit (like a credit card or home equity line of credit) in your credit mix, as this indicates your ability to handle different types of credit.
It is important to remember that credit scores aren’t static; they are constantly changing—calculated based on the most recent credit report data each time the score is requested.
Together, these five categories determine your overall credit score and credit worthiness to potential lenders. Knowing how each element works can help you make informed decisions about using and managing your credit responsibly, hopefully staying on top of your credit score along the way.
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