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How is Your Credit Score Calculated?

Last Updated: January 22, 2024
5 min read

Key points about: how credit score is calculated

  1. Your credit score is a three-digit number (typically between 300 and 850) calculated using information from your credit report.

  2. Credit score is based on five categories: payment history, amounts owed, length of credit history, new credit inquiries, and credit mix.

  3. Payment history, including information like late payments or missed payments, impacts credit score more than any other factor.

A good credit score can be helpful for many of life's situations, from opening a new credit card to renting a home. Credit score can contribute to a lender's decision whether to issue you a loan or credit card, what credit limit to offer and the interest rate on your accounts.

With a good credit score, you could qualify for a higher credit limit and lower interest rates. A lower credit score may hurt your chances of qualifying for a credit card or loan, or only qualify you for a low credit limit and higher interest rate. 

Let's talk about how credit scores are calculated and what makes up a credit score so you can build your credit history and work towards a good credit score. 

What is a credit score?

A credit score is a three-digit number that's generated using a credit scoring model, or a mathematical algorithm. The credit scoring model calculates your credit score using the information in your credit report, a log of your borrowing and repayment history. 

A credit score helps lenders and credit card issuers determine your creditworthiness, which is a measure of how likely you are to pay back debt. They can use this information to decide whether to extend you credit. 

The typical credit score range is between 300 and 850. The higher your score, the more likely that card issuers consider you to be responsible with credit.

Usually, you have a credit report through each of the three major credit bureaus, which are the credit reporting agencies that record your financial data. Each credit reporting agency calculates credit scores slightly differently, using a different credit scoring model. According to Experian®, you have multiple credit reports and a different credit score with each agency. Experian goes on to explain that each lender or credit card company may report your account activity to a different credit bureau, so the information on your credit report varies by credit bureau. 

What information goes into your credit score?

Because the data on your credit report determines your credit score, it can help to understand what information from your credit report influences your score and by how much.  According to the Consumer Financial Protection Bureau, credit score depends on a few factors. The factors may vary depending on which credit scoring models are used to calculate the score, the data source, and the time when the data was collected. The credit score produced by the credit inquiry could even vary depending on what the score will be used for.

Chart showing what makes up your credit score

It's important to remember that credit scores aren’t static; they're constantly changing since they're calculated based on the most recent credit report data each time the score is requested.

How is credit score calculated?

There are five main categories used to calculate credit scores, and each is weighted differently. The five factors include payment history, amounts owed, length of credit history, new credit inquiries, and credit mix. The more you understand how each factor influences your score, the easier it becomes to build positive credit history.

Let's review how each factor impacts credit score:

  • Payment history: Payment history accounts for 35% of your credit score, so it's the most influential factor. Your payment history reflects your payment patterns over time. It's used to measure how consistently you pay back debts and loans. A solid payment history shows creditors that 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. Making all payments on time is essential because late payments can negatively impact your credit score.

Did you know?

Setting up automatic payments or reminders using a mobile banking app could help you prevent late or missed payments. Whether an installment loan or revolving credit account, making payments on time is important for building and keeping a good credit score and avoiding affecting a credit score. If you’re trying to rebuild your credit history, focus on making on-time payments and consider a credit card designed to help build or rebuild your credit history, like a secured credit card.
  • Amounts Owed: The amount of money you owe on your credit accounts, called credit utilization, influences 30% of your credit score. Your credit utilization ratio is calculated based on the total amount you owe across all your credit accounts divided by your total available credit (the sum of your credit limits). The lower your credit utilization ratio, usually means 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. This accounts for 15% of your credit score. 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 that you can manage credit over time. That means keeping accounts open (especially your oldest accounts) can typically help your credit score if they remain in good standing.
  • New Credit: Your new credit includes recently opened accounts and any new credit inquiries. It 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 have a negative impact your credit score. Opening several new credit accounts or making too many inquiries quickly could cause a major credit bureau to see you as a credit risk.
  • Credit Mix: Your credit mix makes up 10% of your credit score. Credit mix describes the diversity of your credit accounts. Lenders may view a well-rounded borrower more favorably. For example, if lenders 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, it could show that you can handle different types of credit responsibly.

These five categories are used to calculate your credit score and showcase your creditworthiness to potential lenders. Knowing how each element works can help you make informed decisions about using and managing your credit responsibly, if and when to open new credit cards or request an increased credit limit, and hopefully stay on top of your credit score.

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  1. FICO® Credit Score Terms: FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.

    Discover Financial Services and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Discover Financial Services and Fair Isaac do not provide “credit repair” services or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating.

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