How Your Credit Score Is Calculated

National Association of Consumer Bankruptcy Attorneys

How Your Credit Score Is Calculated

Brian V. Lee

February 21, 2017

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Your credit score is calculated using the “FICO Five” factors: payment history, credit balances, length of history, credit mix, and new credit.

Instead of having a single credit score, however, you actually have three. Each of the the three major credit bureaus (Experian, Equifax and TransUnion) compile their own separate credit scores.

Yet every credit score uses the same basic Fair Isaac (or FICO) formula, with a few proprietary tweaks. Your credit score is calculated using these basic five factors, which are weighted differently.

Payment History ( 35% )

Your payment history is the single most important factor in how your credit score is calculated. This factor alone comprises 35% of your credit score. Paying your bills late will negatively impact your credit score. Credit bureaus also report the extent to which you paid late, whether 30 days, 60 days, or 90+ days. Besides late payments, bankruptcies, foreclosures, lawsuits, charge-offs, liens, and judgments are also negative items in your payment history. Timely pay your monthly bills and you have this credit score factor covered.

Credit Balances ( 30% )

Credit balances make up the second most important factor in how your credit score is calculated and accounts for 30% of your score. This factor calculates whether you have used up all of of your available credit. In other words, have you maxed out some or all of of your credit sources? Types of debt come into play here, too. Higher balances on revolving credit are more negatively scored than balances on installment accounts, like auto loans or mortgages.

Length of History ( 15% )

The length of your credit history comprises 15% of how your credit score is calculated. This factor looks not only at how long you’ve been using credit, but also at the average age of all of your credit accounts. Long-held and well-maintained accounts have a positive effect on your credit score, as does a long credit history. A short credit history indicates unknown risk to the credit bureaus and lenders.

Credit Mix ( 10% )

Credit mix makes up 10% of your credit score. This credit score factor looks to whether you have a single type of credit, or a varied mix. An excellent credit portfolio uses each of the different types of credit, including mortgages, auto loans, credit cards, store charge cards, and lines of credit. But it is important to remember that this is a small component of your credit score. Do not open credit accounts that you do not need.

New Credit ( 10% )

Like credit mix, 10% of your credit score is comprised of new credit. This factor attempts to calculate your credit risk based on how much credit you have applied for and/or opened recently. Consumers facing cash-flow difficulties often turn to new credit. Thus, a recent increase in applications may indicate greater credit risk. So may a rapid increase in use of previously available credit.

Other Factors in How Your Credit Score Is Calculated

Equifax generates scores ranging from 334 to 818. TransUnion’s scores range from 309 to 839. And Experian has scores ranging from 320 to 844. The credit bureaus also differently weight other factors, including the number of recent credit inquiries, balance-to-loan ratios, and the sheer number of open balances.