How is a credit score calculated?


My last column emphasized the importance of having a good credit rating. Now you might be asking yourself, “How does my credit get a score?”

Your credit score is based on the information in your credit report. Your credit score, sometimes referred to as a credit rating or Fair Isaac Corporation (FICO) score, is a number that helps lenders determine how much of a credit risk you may be.

It has become increasingly common for lenders to make decisions largely based on credit scores. It is therefore important to learn how the score is calculated so you can improve your score if necessary to obtain credit.

Your payment history is the largest percentage of your credit score. That is why it is important to pay your bills on time. If you don’t have a history of late payments, your score may be lowered if your credit cards balance is close to the limit or if you have just begun to use credit.

Creditors may use one credit score. They may generate the scores themselves, or they may use a score calculated by another firm. Two of the most common scores used by lenders are the FICO Score and Vantagescore.


FICO Score

The FICO score is the primary method mortgage lenders use to assess how deserving you are of their credit. A FICO score is calculated using a computer model that compares the information in your credit reports to what is on the credit reports of thousand of other customers. FICO scores range from 300 to 850.


The Vantagescore

The Vantagescore is a newer credit scoring system offered by all three credit reporting agencies. You should have a similar Vantagescore from each of these three agencies. The Vantagescore ranges from 501 to 991.

The formula used to calculate your credit score includes information based on several factors:

Your Payment history (35 percent): A solid record of making on-time payments to creditors improves your credit rating and accounts for about 35 percent of your overall score. A bankruptcy or late payments of any kind can increase your risk level in the eyes of the lenders.

Your debts (30 percent): This portion of your credit rating is determined by how much money you owe, the number of accounts in your name that have balances, and the amount of available credit you’re currently using. The closer you are to the maximum limit of your available credit, the lower this portion of your credit.

The length of your credit history (15 percent): This portion of your FICO score is a bit subjective. Generally, a longer credit history results in a higher score. But you can also achieve a higher score with a short credit history if your credit report shows that you’ve  managed  your credit responsibly.

New sources of credit (10 percent): If you’ve applied for and received new lines of credit from several different sources, credit bureaus take a look at this and weigh it against your credit history. As your amount of available credit rises, this can be a positive factor in your credit, but if you quickly run up debts on these new sources, that’s viewed negatively by the credit bureaus because it suggests an increased risk of default.

Miscellaneous Factors (10 percent): This portion of your credit rating is determined by the different types of credit you carry, including credit cards, car loans, home loans, and other sources of credit.

Scores fluctuate depending on credit activity. Since credit reporting agencies only calculate your score at the lender’s request, it will be  based on the information in your file at that particular credit reporting agency at that particular time.

Different scores from different reporting agencies can be a result of them having different information. To ensure accuracy of information, you should obtain a copy of your credit report from each credit agency before you apply for any credit. To order a free annual credit report from one or all three agencies, do one of the following:

Submit a request online at

Call toll-free 1-877-322-8228.

Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Service, P.O Box 105281, Atlanta GA, 30348-5281. You can print a copy of this form from or

Hopefully, this column has removed some of the mystery from the process that credit bureaus use to determine your credit rating.


Shawna Frazier, a realtor for Re/Max Results, has had a successful full-time real estate business for the past 12 years. Her goal in the coming weeks is to share information of value to MSR readers that will include tips on selling, buying, investing, and restoring your credit. She welcomes reader responses to