How Your Credit Score Is Calculated

Learn what your credit score is based on and the various ways you can improve it.

Your credit score is one of the most important measures of your creditworthiness. For your FICO Credit Score, this is a three-digit number that generally ranges from 300 to 850 and is based on metrics developed by Fair Isaac Corporation. The higher your score, the less risky you are to lenders. By understanding what affects your credit score, you can take steps to improve it.

The 5 components of your credit score

Your credit score is based on the following five factors: 

  • Your payment history represents 35% of your score. This shows if you make payments on time, how often you miss payments, how many days after the due date you pay your bills, and when was the last time payments were missed. Payments made more than 30 days late will generally be reported by your lender and will damage your credit scores. How late you are on a bill, the number of bills showing late payments, and whether you’ve brought bills up to date are all important factors. The higher the rate of on-time payments, the higher your score. Every time you miss a payment, it affects your score negatively.
  • The amount you owe on loans and credit cards makes up 30% of your score. This is based on the total amount you owe, the number and types of accounts you have, and the ratio of money owed to the amount of credit you have available. High balances and maxed-out credit cards will lower your credit score, but lower balances can increase it if you pay on time. New loans with a short payment history may temporarily lower your score, but loans that are closer to payoff may increase it because they show a successful payment history.
  • The age of your credit history represents 15% of your score. The older your on-time payment history, the higher your score. Credit scoring models generally look at the average age of your credit when considering your credit history. This is why you should consider keeping your accounts open and active. It might seem wise to avoid applying for credit and running into debt, but it can hurt your score if lenders don’t have a credit history to examine.
  • The types of accounts you have made up 10% of your score. Having a mix of accounts, including installment loans, home loans, and retail and credit cards, could help improve your score.
  • The credit activity recently is the last 10%. If you’ve opened a lot of accounts lately or have applied for accounts to be opened, this could suggest a potential financial problem and could lower your score. However, credit scoring models are also designed to recognize that consumers seeking a loan are not necessarily an additional risk.

Ultimately, the best way to help improve your credit score is by using your loans and credit cards responsibly and making payments on time. The more your credit history shows that you can manage credit responsibly, the more willing lenders will be to offer you credit at a competitive rate.

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