Calculating Your Credit Score
Learn what your credit score is based on and the many ways you can improve it
Your credit score is one of the most important measures of your creditworthiness. For your FICO score, it’s based on metrics developed by Fair Isaac Corporation. The higher your score is, the less risky you are to lenders. Fortunately, by understanding what impacts your credit score, you can take steps to improve it. Your credit score is based on the following five factors:1
Your payment history accounts for 35%* of your score. This shows whether you make payments on time, how often you miss payments, how many days past the due date you pay your bills, and how recently payments have been missed. The higher your proportion of on-time payments, the higher your score will be. Every time you miss a payment, you risk losing points.
How much you owe on loans and credit cards makes up 30%* of your score. This is based on the entire amount you owe, the number and types of accounts you have, and the proportion of money owed compared to how much credit you have available. High balances and maxed-out credit cards will lower your credit score, but smaller balances can raise it – if you pay on time. New loans with little payment history may drop your score temporarily, but loans that are closer to being paid off can increase it, because they show a successful payment history.
Length of your credit history accounts for 15%* of your score. The longer your history of making timely payments, the higher your score will be. It may seem wise to avoid applying for credit and carrying debt, but it can actually hurt your score if lenders have no credit history to review.
The types of accounts you have make up 10%* of your score. Having a mix of accounts, including installment loans, home loans, and retail and credit cards may improve your score.
Recent credit activity makes up the final 10%*. If you’ve opened a lot of accounts recently or applied to open accounts, it suggests potential financial trouble and can lower your score. However, if you’ve had the same loans or credit cards for a long time and pay them promptly – even after payment troubles – your score will go up over time.
Ultimately, the best way to improve your credit score is to use loans and credit cards responsibly and make prompt payments. The more your credit history shows that you can responsibly handle credit, the more willing lenders will be to offer you credit at a competitive rate.
*Percentages represent the average consumer.
1Certain information provided by Fair Isaac Corporation, San Rafael, California.
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