How Your Credit Score Is Calculated

We have many people asking how their Credit Score is calculated. A person's credit score is used by various creditors, such as credit card companies, mortgage companies, and other companies that lend money, to determine your credit worthiness.

A private company called Fair Issac Corp. calculates your credit score based on the information that appears in your credit report as maintained by Equifax, TransUnion, and Experian, hence, it is important that the information contained in your credit report is accurate. The credit score, called FICO, ranges from 300 to 850. The median FICO score is 720. The higher your FICO, the more easily you will be able to borrow money and at a lower interest rate.

While you can obtain a free copy of your credit report for free, Fair Issac charges you to obtain your credit score. When you order a copy of your credit report from the Federal Trade Commission's Annualcreditreport.com you can order a copy of your credit score.

According to Fair Issac, a credit score is made up of these five factors:

35% of the score is based on your payment history. Even if you can only afford the minimum monthly payments, that is better than missing a payment or two.

30% of the score is based on the percentage of the total credit available to you compared with how much of that credit is used. If you have credit that you are not using (such as a credit card that you haven't used in a while), it is better for your FICO score to leave that account opened rather than close it.

15% of the score is based on your credit history. The longer your credit history the better.

10% reflects how many new accounts have been recently opened.

10% of the score is based on the type of credit you have (i.e., the mix of installment, revolving, consumer finance, etc.)