How is Your Credit Score Calculated

Credit Score Impact Estimator

Understand how different factors contribute to your credit score. Adjust the sliders and selections below to see their estimated impact.

Excellent (Always on time) Good (Few late payments) Fair (Some late payments) Poor (Many late payments/defaults)

%

Percentage of available credit you are using (e.g., $1,000 balance on a $10,000 limit is 10%). Lower is better.

Very Long (10+ years average) Long (5-9 years average) Medium (2-4 years average) Short (Less than 2 years average)

None (No recent inquiries/accounts) Few (1-2 inquiries/accounts in last 6-12 months) Some (3-5 inquiries/accounts in last 6-12 months) Many (6+ inquiries/accounts in last 6-12 months)

Excellent (Diverse types: credit cards, mortgage, auto loan) Good (Mix of revolving and installment) Fair (Mostly one type, e.g., only credit cards) Poor (Only one type, limited history)

This is an estimation for illustrative purposes only and does not represent your actual credit score. Actual scores are complex and proprietary.

Understanding How Your Credit Score is Calculated

Your credit score is a three-digit number that lenders use to assess your creditworthiness. It plays a crucial role in determining whether you'll be approved for loans, credit cards, mortgages, and even rental agreements, as well as the interest rates you'll pay. While the exact algorithms used by credit scoring models like FICO and VantageScore are proprietary, they generally weigh five key factors. Understanding these factors can empower you to make informed financial decisions and improve your score.

The Five Key Factors of Your Credit Score

1. Payment History (Approximately 35% of your FICO Score)

This is the most significant factor. Lenders want to know if you pay your bills on time. A consistent record of on-time payments across all your credit accounts (credit cards, loans, mortgages) is paramount for a good score. Late payments, defaults, bankruptcies, and collections accounts can severely damage your score and remain on your report for several years.

• Positive Impact: Always paying on time.
• Negative Impact: Missing payments, late payments (30, 60, 90+ days late), collections, charge-offs, bankruptcies.

2. Amounts Owed (Credit Utilization) (Approximately 30% of your FICO Score)

This factor looks at how much credit you're using compared to your total available credit. It's often referred to as your "credit utilization ratio." A high utilization ratio suggests you might be over-reliant on credit, which can be seen as a risk. Keeping your credit card balances low relative to your credit limits is crucial.

• Positive Impact: Keeping credit utilization below 30% (ideally below 10%). For example, if you have a $10,000 credit limit, keeping your balance below $3,000 is beneficial.
• Negative Impact: Maxing out credit cards or consistently carrying high balances.

3. Length of Credit History (Approximately 15% of your FICO Score)

The longer your credit accounts have been open and in good standing, the better. This factor considers the age of your oldest account, the age of your newest account, and the average age of all your accounts. A long history of responsible credit use demonstrates stability and reliability to lenders.

• Positive Impact: Having long-standing accounts, especially those with a good payment history.
• Negative Impact: Closing old accounts (which can shorten your average credit age), or having a very short overall credit history.

4. New Credit (Approximately 10% of your FICO Score)

This factor examines how often you apply for new credit. Opening too many new accounts in a short period can be seen as risky, as it might indicate financial distress or an increased likelihood of accumulating debt. Each "hard inquiry" (when a lender pulls your credit report after an application) can cause a small, temporary dip in your score.

• Positive Impact: Applying for new credit sparingly and only when needed.
• Negative Impact: Numerous hard inquiries in a short period, opening many new accounts simultaneously.

5. Credit Mix (Approximately 10% of your FICO Score)

Lenders like to see that you can responsibly manage different types of credit. This includes a mix of "revolving credit" (like credit cards, where the amount you owe varies) and "installment credit" (like mortgages, auto loans, or student loans, where you make fixed payments over a set period). A diverse credit portfolio, managed well, indicates financial maturity.

• Positive Impact: Successfully managing a mix of credit cards and installment loans.
• Negative Impact: Having only one type of credit, or a very limited number of accounts.

How to Improve Your Credit Score

Improving your credit score is a marathon, not a sprint. Here are some actionable steps:

1. Pay Bills On Time: Set up automatic payments or reminders to ensure you never miss a due date.
2. Keep Credit Utilization Low: Aim to keep your credit card balances below 30% of your credit limit, or even lower if possible. Pay down balances aggressively.
3. Don't Close Old Accounts: Even if you don't use an old credit card, keeping it open (and active with occasional small purchases) can help your credit history length.
4. Limit New Credit Applications: Only apply for credit when you genuinely need it.
5. Monitor Your Credit Report: Regularly check your credit reports from all three major bureaus (Experian, Equifax, TransUnion) for errors. You can get a free report annually from AnnualCreditReport.com.
6. Build a Diverse Credit Portfolio (Gradually): As your credit matures, consider a mix of credit types, but only take on new debt you can comfortably manage.

By understanding and actively managing these factors, you can build and maintain a healthy credit score, opening doors to better financial opportunities.