If you want a better credit score, this is the right question to ask: How is credit score calculated?
The only way of knowing the right way to handle your credit is to know how it’s determined. There are no complicated algorithms to memorize — all you need is a general understanding of credit score components.
FICO credit score vs. VantageScore
Before delving into what determines a credit score, let’s get clear on the scores we’re talking about.
There are two scores lenders look at when assessing your creditworthiness — the FICO Score and the VantageScore. You never know which one a lender is going to use, but 90 percent of the time the top lenders use FICO.
However, your VantageScore is important, too. In 2014-2015, more than 2,000 lenders and seven of the 10 largest banks used the VantageScore. It’s worth keeping an eye on this number.
All three of the major credit reporting bureaus have FICO and VantageScores based on the credit reports they have on file for you. That means you actually have six scores to keep track of: Experian’s FICO and VantageScore, Equifax’s FICO and VantageScore, and TransUnion’s FICO and VantageScore.
There are older versions of FICO and VantageScore still in use by some lenders, but the most recent and widely used versions are FICO 8 and VantageScore 3.0.
How is credit score calculated?
Though the FICO credit score and VantageScore are not identical in their components, they are similar. In general, both credit scores are determined by the following:
1. How timely you pay your bills
A single late payment can knock 100 points off your credit score. You can pay a few days late and be fine, but if it’s 30 or more days past due you can expect that to get reported to the credit bureaus.
2. How much you owe
The higher your balances, the more damage it does to your credit score. Ideally, you should keep your credit utilization ratio on revolving credit (like credit cards) below 30 percent and return your balances to zero every month.
3. The length of your credit history
This doesn’t just consider your oldest credit account on record. It considers the start date of your newest credit line as well. Plus, it looks at how long it’s been since you’ve used all of your accounts.
4. The types of credit you have
Credit scores reward variety. That means it’s ideal to have a mix of credit cards and installment loans (for example, an auto loan, mortgage, student loan, or personal loan).
Of course, it’s never advisable to take out an installment loan just to boost your score. If you need the loan, great. If not, you can still build decent credit using credit cards.
5. New credit
There’s nothing wrong with getting a new line of credit, but avoid opening too many in a short period of time. It’s a red flag that you could be getting in over your head and your credit score will pay the price (not to mention your bank account if you are, indeed, taking on too much debt).
Breaking it down
FICO credit score
How are credit scores calculated, exactly? FICO is specific in its algorithm percentages, but notes that they may fluctuate depending on the length of your credit history. If it’s short, they may have to weigh other components more heavily.
- Payment history: 35 percent
- Amounts owed: 30 percent
- Length of credit history: 15 percent
- Credit mix: 10 percent
- New credit: 10 percent
Unlike FICO, VantageScore is less transparent in how much it weighs one component over another, but here’s a general breakdown.
- Payment history: Extremely influential
- Age and type of credit (i.e., credit mix): Highly influential
- Percentage of credit used: Highly influential
- Total balances/debt: Moderately influential
- Recent credit behavior/inquiries: Less influential
- Available credit: Less influential
How to monitor your credit scores
It’s important to monitor your credit scores year-round, as they change all the time.
You can purchase your three FICO scores through MyFICO.com, and you can purchase your three VantageScores through each of the three credit reporting bureaus. However, there are free ways to see your scores, too.
Many credit card companies now provide customers with FICO scores on their monthly statements. If you’re not sure whether your credit card issuer does this, call and ask.
VantageScores are even easier to see for free through several credit monitoring sites. (Of course, you only need to sign up for a few monitoring sites to cover your bases.)
The best approach is a combination of the two. Purchase your FICO scores once a year and monitor your VantageScores all year long through free credit monitoring sites. While the numbers won’t be the same, any change in your VantageScores will be a good indication there’s a change in your FICO Scores as well.
You have your answer to the all-important question: How is credit score calculated? Now put it to good use.
As you now know, both FICO and VantageScore matter. They do things a little differently, but the most important components for both are pretty much the same — keep your debt low and pay your bills on time.
That’s how you prove you’re a good credit risk and, in turn, how you get a better credit score.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|