dcsimg

How is your credit score calculated?

By , CardRatings Contributor

Our credit card articles, reviews and ratings maintain strict editorial integrity; however we may be compensated when you click on or are approved for offers (terms apply) from our partners. How we make money.

According to insiders at FICO, one of the country's best-known credit scoring services, five areas of your financial life make up your credit score. Although the exact weight of each ingredient varies from person to person, they generally rank this way, from highest impact to lowest impact:

Your payment history

The largest piece of your credit score pie comes from your payment history. Every time you're late on a payment, your score drops a little. Rack up a combination of late payments over time, across multiple accounts, and your score can plummet. Those delinquent and default "dings" can stay on your report for a few years, even if you've completed balance transfers and closed the affected accounts.

How much you owe

Credit scoring algorithms determine your risk based on what you owe, compared to how much your current lenders are willing to let you borrow. Banks want to see that you're capable of managing monthly bills, not that you've managed to clear your balances. You'll actually earn a higher score by managing a small balance against a large credit line, compared to being completely-debt free. As your credit utilization goes up, across just one account or across your entire portfolio, you'll notice banks pulling back on their offers.

How long you've been borrowing

Your credit score reflects the length of time between the oldest account on your file and your newest credit relationship. Scoring algorithms can differ here, which is why you might notice conflicting ratings from FICO, Equifax, Experian and TransUnion. Most current credit scoring systems will give you points for your oldest account, whether or not it's still active.

How much new credit you've received lately

If accepted a new credit card deal in the past few months, you may notice a temporary dip in your credit score. Scoring algorithms assume that you need a few months to adjust to a new monthly bill, and that a sudden increase in available credit creates more risk for lenders.

Your overall mix of credit

Though the diversity of your accounts makes up a relatively small chunk of your overall score, you'll earn a higher score by showing you're capable of managing credit cards from multiple lenders, student loans, a home loan, and an auto payment.

Because your credit score doesn't necessarily account for your income or your savings, you may be surprised to see a disconnect between your actual ability to manage your finances and a credit bureau's numeric or letter grade score. Focus on improving each of these five areas, but don't obsess too much over trying to bump yourself up by one or two extra points. Banks make lending decisions based on where your score falls within an acceptable range, factoring in details like your employment history and purchasing power gleaned from their own data sources.

0 Comments

Be the first to comment!

FIND THE
BEST CARD
FOR YOU
Select Your Credit Score:
(Ok to Guess)
Excellent
(720-850)
Good
(690-719)
Fair
(630-689)
Bad
(350-629)
None/Limited I don't Know

Featured Partner Cards

loading
  How is your credit?
Oops! Your credit does not qualify you for this card. Applying and being rejected for this card could possibly hurt your credit
We are redirecting you to offers you are qualified for based on your credit.
720-850
Excellent
660-719
Good
600-659
Fair
350-599
Poor
X
CardRatings is excited to announce the launch of the
100% Free CardRatings Email Course to Learn How to Maximize Travel Rewards.

Created in partnership with ChooseFI

We partnered with ChooseFI to combine CardRatings’ offer expertise with ChooseFI’s tried and true travel rewards strategies. Get to know ChooseFI: they have changed tens of thousands of lives and recently won Podcast of the Year at FinCon.
You may think you are a rewards travel expert, but rewards strategies are changing (e.g., the days of card churning and manufactured spending are numbered). Learn powerful, sustainable strategies (a couple of which even you die-hard travel experts might not know). You'll be so glad you did.
We're planning more courses for the future; this is just the beginning of our journey.
BROUGHT TO YOU BY: