How is Your Credit Score Really Calculated? The Five Key Factors You Need to Know

Understanding how credit bureaus calculate your score can help you make smarter financial decisions. While each credit bureau and scoring model (like FICO or VantageScore) has its own formula, they share common elements. Here’s a breakdown of the five main factors that shape your credit score.

1. Payment History (35%) This is the most significant part of your credit score, making up 35% of the FICO model. It reflects how reliably you pay bills on time. Missed payments, collections, bankruptcies, or charge-offs can seriously damage this part of your score, so timely payments are essential to building or maintaining good credit.

2. Credit Utilization (30%) Credit utilization, or the percentage of your available credit that you're using, is the second most important factor. Aiming to keep your credit usage below 30% of your credit limit can improve your score. Higher utilization can signal risk, suggesting to lenders that you’re relying too heavily on credit, which could negatively impact your score.

3. Length of Credit History (15%) This factor considers the age of your oldest and newest accounts as well as the average age of all your accounts. Generally, a longer credit history positively affects your score, as it shows a record of responsible credit use. Opening new accounts can shorten your average account age, so keep your oldest accounts open if possible.

4. Credit Mix (10%) Having a variety of credit types—such as credit cards, mortgages, and installment loans—can improve your score. A diverse credit portfolio shows lenders that you can responsibly manage different types of debt, even if it only makes up a small part of your score.

5. New Credit/Inquiries (10%) Each time you apply for new credit, a hard inquiry appears on your report, which can slightly lower your score. Opening several accounts in a short period can be seen as risky behavior, so space out applications whenever possible.

While different scoring models weigh these factors slightly differently, focusing on timely payments and responsible credit use can help you improve and maintain a strong credit score. Knowing what goes into your score gives you the power to manage and improve it effectively.