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How Your Credit Score is Calculated

by | Apr 9, 2021

Your credit score is a direct measure of your creditworthiness and usually ranges from 300 to 850. A variety of complex calculations are used to create your score. To complicate matters further, you have multiple credit scores. The most popular ones are FICO and VantageScore. Also, the scoring models used by each of the three credit bureaus — Experian, Equifax, and TransUnion — differ and, not all creditors/lenders report to every bureau, which is why your scores may vary.

If you have concerns about your credit, a credit repair specialist can help you determine what is reducing your score and how to proceed with improving your creditworthiness.

But to help you better understand what your credit score means, here is a breakdown of how it is calculated.

Credit Score Factors

Your credit score is determined by several factors, each accounting for a pre-determined percentage. Both positive and negative information are factored. When you look at the number, these are what are used to determine it (for the present and for tracking your score over time):

  1. Payment History (35%): On-time payments, late payments (made over 30 days late) reported by lenders/creditors, and public records such as bankruptcy filings are used in scoring models. In regard to lateness, the calculation may factor the number of accounts with late payments, how far behind you are, and whether accounts have been brought current. A late payment or other negative mark can remain on your credit report for up to seven years, as determined by the Fair Credit Reporting Act.
  2. Loan Debt (30%): Mortgages and home equity, automobile, personal, and student loans involving installment payments show your creditworthiness if you make on-time payments and are current. Managing multiple accounts can reflect positively on credit scoring models.
  3. Credit Card Debt (30%): The amount you owe, on credit cards or loans, accounts for 30% of your score. You won’t necessarily have a low credit score if you owe money to your credit accounts. But if you use too much of your available credit, this may be interpreted as high risk, making it more difficult to get new credit or a loan.
  4. Length of Credit History (15%): Generally, your FICO score increases over time. But there are various factors that affect this calculation, such as the age of your oldest account, age of the newest account, and the average age of all credit accounts. Other indicators include the length of time an account is established and when you last used certain accounts.
  5. Credit Mix (10%): Having a mix of credit card accounts, a mortgage, installment loans, retail accounts, and other types of credit can help your FICO score. This doesn’t mean you need to have one of every type of account, but having more than just credit cards can be good.
  6. New Credit (10%): The number of new credit accounts recently opened are considered. Opening multiple accounts in a short amount of time, especially if your credit history isn’t that long, can show you’re a greater risk, and can therefore lower your credit score.
  7. Hard Credit Inquiries: When you submit an application for credit or a loan, the creditor or lender will perform a hard inquiry. Having many hard inquires can lower your score; however, multiple inquires may be counted as one if they happen within a certain period of time. Depending on the scoring model, this is generally between 14 and 45 days.

However, requests to see your credit report or reviews a lender or creditor may conduct on it are soft inquiries, and won’t affect your credit score.

Contact American Credit

If you have any concerns about your credit score or negative marks on your credit report, contact American Credit. We provide a free no-obligation Credit Repair Consultation and can achieve a higher success rate by using a pre-litigation process. With credit repair, scores can increase over time. Our process can identify errors, manage disputes, and find opportunities to manage and improve your credit. For more information about our services and the credit repair cost, call us today at 855-270-5109.