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How is Your Credit Score Calculated?

Last Updated: December 4, 2024

8 min read

Table of contents

Key points:

Your credit score is a three-digit number (typically between 300 and 850) calculated using information from your credit report.
Credit score is based on five categories: payment history, amounts owed, length of credit history, new credit inquiries, and credit mix.
Payment history, including information like late payments or missed payments, impacts credit score more than any other factor.

A good credit score can help you achieve many goals, from opening a new credit card to renting a home. Your credit score often determines your eligibility for a personal loan or credit card, interest rates, loan terms, loan amounts and credit limits.

With a good credit score, you could qualify for a higher credit limit and lower interest rates. A lower credit score may hurt your chances of qualifying for the best credit cards or loans available. With a low score, you may only qualify for a low credit limit or a high interest rate.

Let's talk about how credit scores are calculated and what makes up a credit score so you can build your credit history and work towards a good credit score.

What is a credit score?

A credit score is a three-digit number that's generated using a credit scoring model, or a mathematical algorithm. The credit scoring model calculates your credit score using the information in your credit report, a log of your borrowing and repayment history.

A credit score helps lenders and credit card issuers determine your creditworthiness, which is a measure of how likely you are to pay back debt. A bank or credit card company can use this information to decide whether to extend you credit.

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The typical credit score range is between 300 and 850. The higher your score, the more likely that card issuers consider you to be responsible with credit.

Usually, you have a credit report through each of the three major credit bureaus, which are the credit reporting agencies that record data from your credit activity. Each credit reporting agency calculates credit scores slightly differently, using a different credit scoring model. According to Experian^®, you have multiple credit reports and a different credit score with each agency. Experian^® goes on to explain that each lender or credit card company may report your account activity to a different credit bureau, so the information on your credit report varies by credit bureau.

What information goes into your credit score?

Because the data on your credit report determines your credit score, it can help to understand what information from your credit report influences your score and by how much. According to the Consumer Financial Protection Bureau, your credit score depends on a few factors. The factors may vary depending on which credit scoring models are used to calculate the score, the data source, and the time when the data was collected. The credit score produced by the credit inquiry could even vary depending on what the score will be used for.

Chart showing what makes up your credit score

It's important to remember that credit scores aren’t static. They're constantly changing since they're calculated based on your most recent credit report data. That’s why it’s important to check your credit report often and dispute credit report information if it’s false. Mistakes on your report could leave you with a bad credit score.

Factors that don’t determine credit scores

Your credit report information determines your FICO^® Credit Score. That means plenty of other information from your personal and financial background has no bearing on your score. myFICO explains that the following qualities don’t factor into your credit score calculation:

Race or skin color, sex, marital status, religion, and national origin. Under the Consumer Credit Protection Act, basing credit scores or decisions on these factors is considered discrimination. Credit scoring models and lenders are prohibited from considering these demographic traits.
Age. While other credit scoring agencies may consider your age, FICO^® doesn’t. The FTC explains that age can technically influence credit scores without violating the law, as long as older applicants don’t face discrimination.
Address. The location where you live doesn’t impact your score.
Salary. While your income may influence your credit limit, it doesn’t affect your credit score.
Employer. Your job title, company, and employment history don’t appear on your credit report, so they don’t affect your score. However, lenders may take these factors into consideration.
Credit counselling. Working with a certified credit counselor to resolve credit issues or manage credit card debt won’t affect your credit score.

How is a credit score calculated?

There are five main categories used to calculate credit scores. Each carries a different weight. The five factors are payment history, amounts owed, length of credit history, new credit inquiries, and credit mix. The more you understand how each factor influences your score, the easier it becomes to build positive credit history.

Let's review how each factor impacts credit score:

Payment history: Payment history accounts for 35% of your credit score, so it's the most influential factor.¹ Your payment history reflects your payment patterns over time. It's used to measure how consistently you pay back debts and loans. A solid payment history shows creditors that they can trust you to repay your debt. On the flip side, if your payment history includes late or missed payments, you may appear untrustworthy to a credit card issuer or other financial institution. Setting up automatic payments or reminders using a mobile banking app could help you prevent late or missed payments. Making all payments on time is essential because late payments can negatively impact your credit score

Did you know?

If you’re trying to achieve a higher credit score, you can focus on making on-time payments and consider a credit card designed to help build or rebuild your credit history, like a secured credit card.

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Amounts Owed: The amount of money you owe on your credit accounts, called credit utilization, influences 30% of your credit score. You can calculate your credit utilization ratio by dividing the sum of every outstanding credit card balance you have by your total available credit (the sum of your credit limits). A lower credit utilization ratio usually means a higher credit score, depending on other scoring factors. If amounts owed on your credit accounts are high compared to your total available credit, lenders might think you’re taking on more debt than you can handle, which may lead to a bad credit score. To avoid this, you can keep your credit account balances in check by making payments as early and often as possible.

Length of Credit History: Your credit history shows the length of time you’ve been using credit. This accounts for 15% of your credit score. The longer you’ve had credit, the more established your credit history and the more credit references and accounts lenders can use to assess your creditworthiness. A long credit history also shows that you can manage credit over time. That means keeping accounts open (especially your oldest accounts) can typically help your credit score if they remain in good standing.

New Credit: Your new credit includes recently opened accounts and any new credit inquiries. It typically makes up 10% of your credit score. Establishing new credit can help your credit score if managed responsibly. But when you first apply for credit, a lender may request a copy of your credit report, which can temporarily have a negative impact your credit score. Opening several new credit accounts or making too many inquiries quickly could cause a major credit bureau to see you as a credit risk.

Credit Mix: Your credit mix makes up 10% of your credit score. Credit mix describes the diversity of your credit accounts. Lenders may view a well-rounded borrower more favourably. For example, if lenders see a combination of installment credit (like an auto loan or student loan) and revolving credit (like a credit card or home equity line of credit) in your credit mix, it could show that you can handle different types of credit responsibly.

By understanding the elements that influence your credit score and checking it often, you can make informed decisions. Your credit card issuer may offer access to a free credit score check. Discover^® Cardmembers can get a free Credit Scorecard with your FICO^® Credit Score and important information behind it, like credit utilization, number of missed payments, number of recent inquiries, length of credit history, and total number of accounts.² That way, you can stay on top of your credit score and continue building a strong, positive credit history.

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