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How is My Credit Score Calculated?

Your credit score is calculated by using mathematical formulas that analyze your creditworthiness. The formulas consider the amount and types of debt you owe and then analyze and compare your repayment history with thousands of other consumers to determine your credit score.

Credit scores are designed to measure the risk of default by taking into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are closely guarded secrets by each of the three credit bureaus, the Fair Isaac Corporation has disclosed the components and the approximate weighted contribution of each component.

The factor that has the biggest impact on your score, approximately 35% of your score, is whether you’ve paid past credit accounts on time. However, an overall good credit picture can outweigh a few late payments which will continue to have less impact over time unless the late payment is a mortgage payment.

About 30% of your score is determined on the amount you currently owe lenders. Having credit accounts and owing money doesn’t mean you’re a high-risk borrower. But owing a lot of money on many accounts could mean you are financially overextended and may be more likely to make late payments or none at all. Part of the science of calculating a credit score is determining how much debt is too much for a live score given credit profile.

A longer credit history will increase your score. The length of your credit history makes up about 15% of your credit score. However, a high score is achievable with a short credit history if the rest of your credit report indicates responsible credit management.

Recent applications for, or newly opened, credit accounts will weigh against the rest of your credit history. This factor makes up about 10% of your score. FICO scores will distinguish between a search for a single loan and a search for many lines of credit, in part by the length of time over which inquiries occur. If you’re seeking a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your credit score.

Several minor factors also can influence your score. About 10% of your score is acquired from these factors. For example, having a mix of credit types on your credit report – credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit – is normal for people with longer credit histories and can slightly improve their scores.

It’s unlikely that each credit agency would give the same score to the same person since each agency collects their information from different creditors. Even when they collect from the same creditors, they update their records at different times. To get a more accurate picture, lenders pull FICO scores from all three agencies and then base their lending decisions on the middle of the three scores.


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