Your credit score is more than just a number—it's a snapshot of your financial reliability. Whether you're applying for a credit card, buying a home, or even renting an apartment, your credit score can influence the outcome. But how is this important number determined?
This article explains the ins and outs of credit score calculation: what factors are involved, how they’re weighted, what the major scoring models are, and how you can improve your score over time.
What Is a Credit Score?
A credit score is a numerical rating—usually between 300 and 850—that indicates your creditworthiness. In simpler terms, it tells lenders how risky it might be to lend money to you. The higher your score, the more likely you are to be approved for credit and receive favorable terms.
Who Calculates Your Credit Score?
Several entities play a role in producing and using your credit score:
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Credit Reporting Agencies (CRAs): These are companies that collect your credit information from various lenders and financial institutions. The three main CRAs are:
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Experian
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Equifax
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TransUnion
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Scoring Model Providers: They use your credit report to generate your credit score. The two most widely used models are:
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FICO Score (by Fair Isaac Corporation)
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VantageScore (developed by the three major CRAs)
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Lenders and Creditors: They report your account activity to the credit bureaus and use your score to make decisions about loans and credit lines.
Main Components of a Credit Score
Credit scores are calculated based on five key categories. The FICO model—used in about 90% of lending decisions—assigns different weights to each of these factors:
1. Payment History – 35%
This is the most important part of your credit score. Lenders want to know: Do you pay your bills on time?
Things that impact this category:
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On-time payments
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Late or missed payments
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Accounts sent to collections
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Bankruptcy
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Foreclosure
Even a single missed payment can lower your score, especially if it’s recent. The longer a payment is overdue, the greater the damage.
2. Amounts Owed – 30%
Also known as credit utilization, this measures how much of your available credit you're using. High balances can indicate a higher risk, even if you're making payments on time.
Important concepts:
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Credit Utilization Ratio: This is your total credit card debt divided by your total credit limits. Aim to keep this ratio under 30%—under 10% is ideal.
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Number of accounts with balances: Multiple cards with balances can also lower your score, even if individual amounts are small.
3. Length of Credit History – 15%
Credit scoring models favor longer credit histories. A longer track record gives lenders more data to predict future behavior.
Key elements:
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Age of your oldest credit account
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Average age of all your accounts
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How long each account has been active
Keeping older accounts open, especially if they’re in good standing, can help boost your score.
4. Credit Mix – 10%
Having a variety of credit types can slightly improve your score. This shows lenders you can manage different forms of credit.
Examples include:
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Credit cards
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Student loans
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Mortgages
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Auto loans
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Retail or store credit cards
That said, this factor is relatively minor. Don’t take out new loans just to improve your mix.
5. New Credit – 10%
Opening multiple new accounts in a short time can raise red flags. Each time you apply for credit, a lender checks your report—a process called a hard inquiry, which may temporarily lower your score.
Other considerations:
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Too many inquiries = higher risk
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Opening several new accounts = lower average account age
Checking your own credit is considered a soft inquiry and has no impact on your score.
What Do Credit Score Ranges Mean?
Here’s a breakdown of how most lenders interpret different score ranges:
| Score Range | Rating |
|---|---|
| 800–850 | Excellent |
| 740–799 | Very Good |
| 670–739 | Good |
| 580–669 | Fair |
| 300–579 | Poor |
FICO vs. VantageScore: What’s the Difference?
While both models use similar data and a 300–850 range, they have a few key differences:
| Feature | FICO | VantageScore |
|---|---|---|
| Created By | Fair Isaac Corporation | Major credit bureaus |
| Common Usage | Used by most lenders | Gaining popularity |
| Scoring Start | Needs 6 months of data | Can score newer accounts |
| Late Payment Sensitivity | Emphasizes recent delinquencies | Weighs patterns of behavior |
Where Credit Report Data Comes From
Your credit score is based on information in your credit report, which is a detailed record of your credit history. Here’s what it includes:
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Personal information: Name, address, date of birth, and Social Security number
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Credit accounts: Loans, credit cards, and lines of credit, including balances and payment history
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Public records: Bankruptcies, foreclosures, and liens
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Credit inquiries: A record of who has looked at your credit
Lenders, banks, and even some landlords report this information to credit bureaus, who compile it into your report. The scoring models then use it to generate your credit score.
How to Check Your Credit Score
You can check your credit score for free through a variety of sources:
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Your bank or credit card issuer: Many offer free credit scores as a perk
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Free online tools: Credit Karma, Credit Sesame, and others typically provide VantageScore
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MyFICO.com: Provides access to your official FICO scores (paid)
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AnnualCreditReport.com: Offers free access to your credit reports from each bureau, once per year
Note: Credit reports don’t always include your score, but they contain the data used to calculate it.
Steps to Improve Your Credit Score
Building a good credit score takes time, but it’s absolutely possible with the right habits. Here are practical tips:
1. Always Pay on Time
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Set up reminders or automatic payments
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Consider using apps to track due dates
2. Reduce Credit Card Balances
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Keep your utilization low—ideally under 30%
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Pay more than the minimum if you can
3. Avoid Too Many Applications
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Each application creates a hard inquiry
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Space out new credit requests
4. Don’t Close Old Accounts
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Even unused accounts contribute to your credit age
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Keep them open unless there’s a good reason to close
5. Check Your Reports Regularly
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Spot and dispute any errors quickly
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Use AnnualCreditReport.com to monitor all three bureaus
6. Diversify Your Credit Over Time
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Having a mix of credit types helps—but only if you need them
How Long Do Negative Marks Stay?
Negative information doesn’t last forever, but it can take years to drop off your report. Here’s how long common items stay:
| Item | Time on Report |
|---|---|
| Late payments | 7 years |
| Collections | 7 years |
| Bankruptcies (Chapter 13) | 7 years |
| Bankruptcies (Chapter 7) | 10 years |
| Hard inquiries | 2 years |
| Foreclosures | 7 years |
Final Thoughts
Your credit score is a critical part of your financial profile. While the algorithms behind credit scores may seem complex, they boil down to simple behaviors: pay on time, borrow responsibly, and manage your credit wisely.
Knowing what factors affect your score empowers you to take action. Whether you're starting from scratch or trying to repair a damaged score, the same rules apply. Build good habits, monitor your progress, and be patient—the results will follow.
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