How Your Credit Score Is Calculated

Have you ever wondered how your credit score is calculated? While it is unknown how FICO comes to your exact FICO score number they do disclose the major categories they consider and how much each categorgy is weighted. Your credit score consists of five major components that are relatively easy to understand. If you can master these five categories your credit score should help you to receive the best interest rates on any debts you apply for.

If you want to follow along all of these factors can be found on your own credit report. I’ve already written a step by step guide on how to get your free annual credit report that you are entitled to.

Payment History – 35%

Your payment history is the largest category that helps determine your FICO credit score. If you’ve never had any late payments you should received all of the points for this category.  If you’ve had a payment that is more than 30 days late you’ve lost some points here. The longer you’ve been delinquent the lower your score goes. The more missed payments you have to worse your score gets. They also take into account how much the delinquent amount is.

To me it makes a lot of sense to have you payment history as the largest portion of your credit score. If you’ve made one late payment chances are you’re likely to make another. While it is possible that it could have just been a slip up and you forgot about a bill I’d be willing to be the majority of the late payments are due to financial struggles or constant carelessness. Having your paycheck run out before the end of the month is not a good position to be in and your credit score will reflect any struggles you’ve had in this area if it results in late payments.

Amounts Owed – 30%

The amount of money you owe is the next biggest factor that will determine your credit score. If you already owe a ton of money it is considered riskier to loan you additional funds because you’ll have yet another bill to keep up with!

Another factor in this category, in addition to the nominal amount of money you owe, is your credit utilization ratio. This is calculated by taking your outstanding balance on your debts and dividing it by the maximum credit limit you have on your debts. If you have five credit cards that each have a $10,000 credit limit (total of $50,000 in available credit) and you owe $10,000 in total on those credit cards your credit utilization ratio would be 20%.

Try to keep this ratio low in order to get the most points possible.

Length of Credit History – 15%

This is one of the easiest categories to understand! The longer you’ve had credit the more points you will get in this area. Another factor is the average age of all of your credit accounts. If you’ve recently opened up a lot of new accounts your average age will get much younger and probably knock a few points off your score.

Credit Mix – 10%

This 10% chunk of your credit score represents the diversity of the types of accounts on your credit report. Types of accounts include revolving credit (credit cards), installment loans (think car loan), mortgages and student loans. This is only 10% of your score though so I wouldn’t take out a student loan if you don’t need one!

Inquiries – 10%

This is the last 10% of your score. Inquiries are also called hard pulls and are normally from applying for new credit. The more inquiries you have in the last 12 months the lower your score will be. One tip for this section is if you’re going to be shopping around for a loan do it in a short time period (2 weeks max) so that all of the inquiries only count as one against your score.

Do these categories make sense to you? What’re your thoughts on how FICO credit scores are calculated? If you’re interested in seeing an approximation of your credit score (called the Experian National Equivalency Score) check out my review of Credit Sesame and sign up to see your score free! 

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.


  1. Nice breakdown – I don’t think a lot of people realize what goes into your credit score. We got a very detailed breakdown of our score and what actually counted against us when we applied for our home refinance a few months ago. It was very eye opening to see where exactly you lose points!

    • I definitely didn’t know what determined my credit score. The funny thing is that now that it’s the best it’s ever been, I don’t even really care anymore. My husband and I will pay for everything in cash from now on, even if we buy more properties. The last straw was when someone charged something on our American Express from another country, we canceled our last credit cards and have never felt better. Good information to know though 😉

    • Very cool! Glad you got an inside look at your score and how it is calculated.

  2. Love the breakdown. It’s important to know what goes into your credit score. If you didn’t know what affects it, how are you supposed to improve it? Great post.

  3. It’s so common for people to have no clue as to what goes in their credit score. Should you cancel a credit card or leave it open? Should you have a revolving balance or pay it off each month? All these are important questions to know the answer to…especially if you want a high credit score.

    • Yup! Although if you don’t ever plan on having debt it doesn’t matter too much. You just won’t get good terms if you ever need emergency debt (something I don’t advocate).

  4. For me I have quite good credit, but I do wonder how long a single late payment affects your credit score. In my case it only happened because I somehow didn’t get the bill in the mail when I moved. I was able to phone in and remove the interest charges, but it would have already been reported to the credit bureaus. I would think that since I have so few late payments on my history, it should be a pretty small ding.

  5. I haven’t checked my score in quite a while. I’m sure it’s ok, but I don’t plan any large credit purchases anytime soon. We just paid off all our consumer debt, so it’s time to become the lender. I might look into Prosper or Lending Club. Great breakdown on what goes into this evil formula.

    • I don’t have much experience with peer to peer lending but I might have to give it a shot when my girlfriend’s student loans are gone.

  6. I never worried about my score because I was always careful and responsible with my credit. Roughly 25 years ago, I learned I had a charge off against my account. The charge off was erroneous, but it took me 6 months to correct it. This a good reason to routinely check you r credit score.

    • Yah unfortunately you can’t control erroneous reporting other than to check your credit report and make sure there isn’t anything false there.

  7. Jon Rhodes says:

    Yeh it makes good sense this. Good tips about making enquireies within 2 weeks!

  8. Good to know! It’s funny when you read this stuff, and really brings to mind the sentiment that your credit score is based on how well you borrow. And for me, all I could think of was how Dave Ramsey calls it the “I love debt” score, haha.

  9. I don’t worry about my score as mine will inevitably start to drop since it’s been 3 years since I’ve borrowed or had activity. It’s amazing that I talk to people who have 100K of consumer debt, yet they have a high credit score…. seriously who cares?

  10. This is really important to understand, especially if you’re getting ready to buy a home. A few points one way or the other can influence your mortgage rate.

  11. I didnt know abou the short period of time enquiries counting as one thing. Thats neat.

  12. Jason Clayton | frugal habits says:

    Great break down. First time I’ve seen it broken down by percentages – makes perfect sense.

    I can see where it gets the name “I love debt score”, but it is also “I can manage debt score”. Maybe not a necessary evil – but close to it. 🙂

  13. Ornella @ Moneylicious says:

    Nice breakdown! That’s why we stress to make your payments on time! 🙂

  14. It’s important to remember that a credit score is a snapshot in time. This snapshot will change every time a new account is reported or you lower your utilization. Since utilization is so important, I always tell people to pay off their balance early 1-2 months before applying for important lines of credit. I think having too low of credit utilization is a myth though..

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