Your credit score, which commonly refers to your FICO score, is calculated based on five factors: payment history, amount owed, length of credit history, new credit, and credit mix.
FICO is not the only type of credit score, but it is one of the most common measurements lenders use to determine the risk involved in doing business with a borrower.
Although FICO does not reveal its specific calculation, it does report the main factors used to calculate its credit scores. Lets look at those five factors in more detail.
Key Takeaways
- A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix.
- Your record of on-time payments and amount of credit you've used are the two top factors.
- Applying for new credit can temporarily lower your score.
- Your credit score is calculated based on information in your credit report.
How a FICO Credit Score Is Calculated
A credit score is designed to measure your risk as a borrower. FICO does not reveal its proprietary credit score calculator formula, but the calculation incorporates five major components, with varying levels of importance. These categories with their relative weights are:
- Payment history (35%)
- Amount owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
All of these categories are taken into account in the calculation of your overall score, which can range from 300 to 850.
Payment history
The category of payment historytakes into account whether you have paid your credit accounts consistently andon time.It also factors in previousbankruptcies, collections, and delinquencies. The more payment issues you have in your credit history, the lower your credit score will be.
Amount owed
The next largest component is the amount you currently owe relative to the credit you have available. Credit score formulas assume thatborrowers who continually spend up to or above their credit limit are potentialrisks.
Lenders typically like to see credit utilization ratios—the percentage of available credit that you use compared to your available credit—below 30%.
Though this component of the credit score focuses on your current amount of debt. It includes the number of different accounts that you have open and the specific types of accounts you hold. A large total amount of debt from many sources will have an adverse effect on your score.
Length of credit history
The longer your credit accounts have been open and in good standing, the better.Lenders will view someone who has never been late with a payment in 20 years as a lower risk than someone who has been on time for two years.
New credit
Also, when people apply for credit frequently, it probably indicates financial pressures, so every time you apply for credit, your score gets dinged a little. Before opening a new credit account, it’s smart to consider whether having that extra credit is worth the drop in your credit score.
Credit mix
Lenders like to see a healthy credit mix that shows that you can successfully manage different types of credit. Revolving credit (credit cards, retail store cards, gas station cards, lines of credit) and installment credit (mortgages, auto loans, student loans) should both be represented, if possible.
Credit Score Calculation: What Isn’t Included
Your credit score reflects only the information contained in your credit report. Your credit report doesn't include information like your age, income, or employment history. It also will generally not include your history with utilities such as cable and phone bills nor your rental payment history.
You can monitor your credit report regularly as this information is used to calculate your credit score. You are entitled to one free credit report per year from each of the three major credit bureaus, which include Experian, Equifax, and TransUnion. You can request the report at AnnualCreditReport.com. Review your report and report any inaccuracies.
If your credit score is low and you need assistance in removing any negative marks, consider using a credit repair company.
How Often Is a Credit Score Calculated?
Generally, your credit score is calculated and updated once per month because lenders usually report information monthly. It may be updated more frequently depending on your situation and lenders. Credit scores are not fixed numbers.
Are Utilities Included in Your Credit Score?
Utilities generally are not included in your credit score because these accounts are not considered credit accounts. Utilities companies may report your account to a credit bureau when you account has become delinquent, but they will typically not report on-time payments as credit card companies do. However, you may use a service like Experian Boost to have your utilities included in your credit history.
Are Bankruptcies Included in Your Credit Score?
Bankruptcies are included in the factors that are used to calculate your credit score. A bankruptcy will likely have a significant negative impact on your credit history for up to 10 years.
The Bottom Line
Understanding what influences your credit score will help you determine how to establish and maintain a healthy credit score. You can develop a strategy for improving your credit score so that you will be more likely to be approved for financial products at better rates, which can put you on the road to financial health.
FAQs
A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix. Your record of on-time payments and amount of credit you've used are the two top factors. Applying for new credit can temporarily lower your score.
How is credit score calculated? ›
A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix. Your record of on-time payments and amount of credit you've used are the two top factors. Applying for new credit can temporarily lower your score.
How can I raise my credit score 100 points in 30 days? ›
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
How do I know what my credit score really is? ›
Use a credit score service or free credit scoring site.
You're entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com.
How common is a 700 credit score? ›
Credit score distribution: How rare is an exceptional 800 to 850 score?
| FICO® Score range | Percent within range |
|---|
| 650-699 | 12% |
| 700-749 | 17% |
| 750-799 | 24% |
| 800-850 | 23% |
4 more rowsMay 31, 2023
While income doesn't have a direct impact on your credit score, it can have an indirect impact since you need to have sufficient income to pay your bills. And if you don't make enough money to cover your bills, you can rack up debt or miss payments, which can negatively impact your credit score.
Is 650 a good credit score? ›
As someone with a 650 credit score, you are firmly in the “fair” territory of credit. You can usually qualify for financial products like a mortgage or car loan, but you will likely pay higher interest rates than someone with a better credit score. The "good" credit range starts at 690.
Can you buy a house with a 622 credit score? ›
Generally, the higher your credit score, the more likely you'll qualify for a mortgage loan with these lenders. Many will accept a credit score as low as 620, but they may have other requirements for those borrowers, such as a higher income or a larger down payment.
Is 600 a good credit score? ›
According to a report from Experian®, the average FICO credit score in America was 714 in 2022. So 600 falls below that national average. On the VantageScore range, the company says 600 scores are considered poor.
What are the 5 C's of credit score? ›
Character, capacity, capital, collateral and conditions are the 5 C's of credit. Lenders may look at the 5 C's when considering credit applications. Understanding the 5 C's could help you boost your creditworthiness, making it easier to qualify for the credit you apply for.
Making debt payments on time every month benefits your credit scores more than any other single factor—and just one payment made 30 days late can do significant harm to your scores. An account sent to collections, a foreclosure or a bankruptcy can have even deeper, longer-lasting consequences.
Why is my credit score so low when I have no debt? ›
Various weighted factors mean that even with no credit, your credit score could still be low because the length of your credit history or credit mix, for example, could also be low.
What is a good credit score to buy a house? ›
Some types of mortgages have specific minimum credit score requirements. A conventional loan requires a credit score of at least 620, but it's ideal to have a score of 740 or above, which could allow you to make a lower down payment, get a more attractive interest rate and save on private mortgage insurance.
What is a good credit score for my age? ›
What is a good credit score for your age? You might consider your score to be good if it meets or exceeds the average for your peers, but that isn't the best gauge. Following NerdWallet's general guidelines, a good credit score is within the 690 to 719 range on the standard 300-850 scale, regardless of age.
What's the fastest way to check my credit score? ›
To check your credit score easily at no cost, you can use websites such as Credit Karma or Credit Sesame. By signing up and creating an account, you can get updates about your credit scores and credit activity such as a drop or increase in your score or the opening or closing of accounts.
How to get a 900 credit score? ›
A credit score of 900 is not possible, but older scoring models that are no longer used once went up to 900 or higher. The highest possible credit score you can get now is 850.
How to get an 850 credit score? ›
According to FICO, about 98% of “FICO High Achievers” have zero missed payments. And for the small 2% who do, the missed payment happened, on average, approximately four years ago. So while missing a credit card payment can be easy to do, staying on top of your payments is the only way you will one day reach 850.
What is the most accurate credit score? ›
The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan.
What's the difference between my FICO score and my credit score? ›
A credit score is a three-digit number that measures your financial health and how well you manage credit and debt. FICO scores are a specific type of score that lenders can use when making borrowing decisions. The FICO credit scoring system is the most widely used credit score.
