Learn How Your Credit Score Is Calculated (Then Raise It)

how is credit score calculated

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.

The takeaway

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.

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