How Are Credit Scores Calculated? Quick Guide

Credit scores are calculated using complex algorithms that consider factors such as your payment history, credit utilization, length of credit history, types of credit accounts and recent credit inquiries.

Read on to learn more about the calculations and how you can keep your score high or give it a boost.

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Key Takeaways

• Credit scores are calculated mostly with payment history and credit utilization. Both FICO and VantageScore models heavily reward on-time payments and lower balances.

• FICO and VantageScore use different formulas, though both evaluate factors like credit age, account mix and recent credit applications to measure borrowing risk.

• Keeping older accounts open and limiting hard inquiries can help your score because length of credit history and new credit activity both affect scoring models.

• You can improve your credit score over time by paying bills on time, reducing balances and correcting report errors, which may help you qualify for better financial products and lower rates.

Summary generated by AI, verified by MoneyLion editors

FICO vs. VantageScore Credit Scores: At a Glance

While both FICO and VantageScore measure credit risk, they use different scoring models, timelines and weighting systems.

How Is a FICO Score Calculated?

Your FICO score is calculated by weighing the following five factors: payment history, amounts you owe, length of credit history, your credit mix and new credit.

Here’s a percentage breakdown:

• Payment history → 35%: Timely payments vs. missed payments

• Amounts owed → 30%: How much credit you’re using compared to your limits

• Length of credit history → 15%: Age of your accounts

• Credit mix → 15%: Mixture of credit cards, loans and mortgages

• New credit → 10%: Number of recent hard inquiries

Payment History

Your payment history is the single most important factor lenders use to determine your creditworthiness. It accounts for 35% of your FICO score.

Lenders feel it’s a predictor of whether you’ll pay back your loans in the future.

Amounts Owed or Credit Utilization

This number represents the amount of credit you’re using compared to your limits.

For example, if you have a $1,000 credit limit and a $300 balance, your utilization percentage is 30%. That’s the ideal percentage lenders like to see.

Length of Credit History

Your credit report will take into account the age of your oldest accounts and the length of time you’ve had your newest accounts. The longer you’ve had to develop your credit history, the higher this portion of your score will be.

Do not close old accounts — it benefits your credit history.

New Credit

Opening several new lines of credit at once can signal to lenders that you’re in a tough financial position.

New credit accounts for 10% of your FICO score.

Credit Mix

Not all loans are one and the same. The variety impacts your credit score, showing lenders that you haven’t put all your eggs in one basket.

Lenders will look at whether you have credit cards, loans and a mortgage as a part of your credit mix.

How Is VantageScore 4.0 Calculated?

Your VantageScore 4.0 is calculated by weighing six different factors with varying percentages. Those six factors are payment history, depth of credit, credit utilization, recent credit, balances and available credit.

• Payment history → 41%: VantageScore 4.0 weighs whether you’ve made your previous payments on time more heavily than FICO.

• Depth of credit → 20%: VantageScore considers how long your lines of credit have been open. 20% of your score is made up of the average age of your credit, plus consideration of your oldest and newest accounts.

• Credit utilization → 20%: Your credit utilization is the ratio of credit you have available to how much you’ve used. It’s inspected based on individual accounts, so having one card maxed out could bring your score down even if your average utilization is low.

• Recent credit → 11%: Hard inquiries into your credit report can bring the score down. Applying for new lines of credit means you’ll likely have more hard inquiries.

• Balances → 6%: The total amount owed on your accounts, including delinquent ones and those where you’ve kept up with your payments, will impact your score. A high balance — or owing a lot of money — can hurt your score.

• Available credit → 2%: This is simply how much money you have available through your lines of credit. A higher number can raise your score ever so slightly.

Key Credit Score Factors Explained

Both FICO and VantageScore have key factors that overlap and are important for both scoring models.

• Payment history: This is the key factor that’s important in both models.

• Credit utilization: How much of your available credit are you actually using?

• Credit age: How long have you kept your credit cards open?

• Credit mix: Do you have different types of credit, including loans, credit cards and mortgages?

• New credit inquiries: Do you have recent hard inquiries on your credit?

What Is Not Included in a Credit Score?

The following factors are not included in your credit score:

• Age: Your age doesn’t impact your credit score, though the age of your accounts does.

• Income: How much you make doesn’t matter — the ratio of how much you spend on credit versus how much you pay off does.

• Sex or gender: These things cannot be held against you or used in your favor.

• Employment history: Getting fired from a job doesn’t necessarily mean your credit score will go down.

• Where you live: The state where you live and whether you’re in an apartment or a house do not matter for your credit score.

• Public records other than bankruptcy: Things like your criminal history, child support obligations and civil judgments don’t directly impact your credit score.

Credit Score Ranges

Your credit score can range between 300 and 850. Here are the general guidelines:

• 300 to 579: Poor

• 580 to 669: Fair

• 670 to 739: Good

• 740 to 799: Very good

• 800 to 850: Excellent

Good To Know

Borrowers with a 690 credit score or a 705 credit score are usually considered lower-risk applicants by lenders and may qualify for lower rates and stronger approval odds.

How To Improve Your Credit Score

You can improve your credit score by doing the following:

• Pay loans on time: Your payment history makes up a huge chunk of your credit score. Paying on time every month will help to gradually raise it.

• Have a lower utilization score: Limit the amount of available credit you’re using.

• Fix errors: If you see any errors in your credit report, contact the credit bureaus to have that information removed and raise your score.

• Limit new credit: Don’t make new hard inquiries.

• Maintain account history: Review your credit report periodically. Many of the best credit score apps can also help you monitor score changes and track your progress over time.

Final Takeaways

• Your credit score can range from 300 to 850.

• Your credit score is based on payment history, credit utilization, length of credit history, types of credit accounts and recent credit inquiries.

• FICO and VantageScore are two credit score models. Lenders tend to use FICO more.

• Payment history is one of the most important factors for your credit score.

• You can improve your credit score by paying loans on time, fixing errors and limiting new credit.

FAQs

Why are credit scores different?

FICO and VantageScore 4.0 use different formulas to determine their versions of your credit score.

How often do credit scores update?

Credit scores are updated every 30 to 45 days.

Do inquiries affect your score?

Hard inquiries do impact your credit score. They can cause your credit score to dip.

What doesn’t affect your credit score?

Your age, income, gender, employment history, where you live or public records — other than a bankruptcy filing — will not impact your credit score.

How many accounts do you need to generate a score?

You need at least one account to generate a FICO score. The account must be at least six months old. VantageScore needs at least one month of activity.

Key Terms

• Credit utilization: The percentage of your available revolving credit currently in use.

• Payment history: A record showing whether you’ve paid credit accounts on time.

• Hard inquiry: A credit check created when you apply for new credit that may slightly lower your score.

• Credit mix: The variety of credit accounts you have, such as credit cards, mortgages and installment loans.

• Length of credit history: The age of your credit accounts, including your oldest and newest accounts.

Summary generated by AI, verified by MoneyLion editors

Sources

• Chase. "What is the VantageScore® 4.0 credit model?"

• Federal Trade Commission. "Understanding Your Credit."

Anna Yen contributed to the reporting for this article.