How Is a Credit Score Calculated?

Understanding the factors that affect your credit score can help you improve your score over time. Here’s what you need to know about how credit scores are calculated.

By Julie Anderson | American Express Credit Intel Freelance Contributor

8 Min Read | December 15, 2021 in Credit Score



Your credit score is calculated using your past payment patterns, how much of your credit you’re using, how long you’ve had credit, and your credit mix.

Lenders report your loan payment behavior to the three national credit bureaus, which create a credit report. Credit scoring algorithms calculate your credit scores using the information in those credit reports. 

A credit score, which can range from 300 to 850, is designed to predict for a lender how creditworthy you are. In other words, how risky would it be to lend you money? That prediction is the result of a calculation that analyzes how well you’ve managed your credit in the past. Understanding how a credit score is determined can help you raise your score. And with a better score, better terms for loans and other forms of credit usually follow.

We can’t show you the actual math behind credit score calculation algorithms because the companies that make the scoring models consider them trade secrets. But we can walk you through how credit score data is collected, the major elements of the algorithms, and how your credit-management behavior influences the models – and, ultimately, the credit score that’s calculated for you. 


What Information Is in a Credit Report?

As you make monthly payments on your credit card, auto loan, mortgage, or any other debt, your lenders report those payments and the amounts owed to the three major credit reporting agencies: Equifax, Experian, and TransUnion. From this information, the credit bureaus create a credit report. The information in that credit report is then used in proprietary algorithms by FICO or VantageScore to calculate your credit score.

You can request a free copy of your credit report from each of the credit bureaus once a year at In the report, you’ll see your credit and payment history for both open and closed loans and credit card accounts. For example, if you refinance your house, both the old and new mortgage loans appear in the report. Paid-off auto loans are also reported. Medical debt usually isn’t included in your report for 180 days, so health insurance companies have time to settle accounts.

For each loan, the report includes:

  • The opening and closing date.
  • High balance.
  • Type of loan.
  • Whether any payments were missed or late.
  • Any foreclosures or referrals to collection agencies.

Your credit reports from the three bureaus may vary slightly, because lenders sometimes send reports to only one or two of the credit bureaus. Recognizing this, mortgage companies typically pull all three credit scores but use only the middle value.

Did you know? As an added security measure to help protect against fraud, American Express reports a reference number to credit bureaus – instead of your actual account number.


What Is a Credit Score Based On?

The most commonly used credit scoring models are from FICO, which is used for the majority of lending decisions, and VantageScore, which is a collaboration of the three credit bureaus. Both companies use proprietary algorithms that result in scores ranging from 300 to 850. The average FICO credit score was 716 in 2021.1 Although the algorithms vary, the two companies consider these five factors in their calculations:

  • Payment history.
  • Amount of available credit used.
  • Length of credit history.
  • Mix of credit.
  • New sources of credit.

How much each these factors influence your FICO credit score is shown in the accompanying pie chart.2

Elements of a FICO Score


Payment History Carries the Most Weight in Credit Score Calculations

At 35%, payment history carries the most weight because it shows how well you’ve managed your credit in the past. Types of accounts considered in payment history include credit cards, auto loans, retail store credit, student loans, personal loans, mortgages, and home equity lines. If you have any bankruptcies, foreclosures, or accounts turned over to collection agencies, these will negatively affect your score. Late payments, defined as more than 30 days late, and missed payments can stay on your credit report for seven years. Because payment history plays such a large part in credit score calculations, paying at least the minimum amount, on time, for every credit card or other debt can help you get and keep your credit score in a good or better range. If you know you’ll miss a payment, contacting your lender in advance may get you some extra time without negatively affecting your credit score.


Amount of Available Credit Is Next in Credit Score Calculations

At 30%, the amount you owe compared to your credit limit is a close second to payment history. To see how this calculation works, consider this: If one of your credit cards has a credit limit of $5,000 and a second card has a credit limit of $7,000, your total available credit is $12,000. If you currently owe $500 on the first card and $300 on the second card, your total usage is $800, meaning that you’re using only 6.6% of your available credit. The general rule of thumb is that if you use more than 30% of your credit limit, your score will begin falling. The way this part of the calculation works means that closing a credit card you’re not using could actually lower your credit score, because your total credit limit would be reduced.


Your Old Active Accounts Are Friends

The length of credit history category simply measures how long you’ve had credit. Particularly important is the age of your oldest active account. That means that keeping your oldest credit card account open, even if it is not used, can have a positive effect on your credit score.


New Credit and Credit Mix Are Smaller, but Still Important, Influences

At 10% each, these factors contribute less to your credit score, but shouldn’t be ignored. New credit is a measure of the number of new accounts you’ve opened recently. Although new accounts increase your available credit, opening too many new accounts in a short period sends a red flag to creditors.

Even just looking for new sources of credit can hurt your credit score. When a potential lender checks your credit report before approving a new loan, it’s called a hard credit inquiry – and it has a negative effect on your credit score. If you’re considering different lenders for a new car loan or mortgage, however, all inquiries within 14 to 45 days are considered as one hard inquiry. Soft inquiries – made by you or by a lender you already do business with – are not considered in credit score calculations.

Credit mix refers to the types of loans you have. A mix of installment loans, such as an auto loan, and credit cards demonstrates that you’re able to manage different types of payback activity. Installment loans require a fixed monthly payment, while payments to credit cards are more flexible in the amounts you can pay monthly.


What Is Not Measured in a Credit Score?

Some of what’s not measured in credit score calculations include your income, how long you’ve worked at your job, and how long you’ve lived in your house. Still, lenders may consider these factors separately in determining your creditworthiness.


Industry-specific Scores Are Tailored to the Type of Loan Requested

Depending on the type of loan, lenders may use an industry-specific FICO score tailored to that type of credit. For example, lenders usually use the FICO Auto Score algorithm when deciding on auto loans, while credit card companies often base decisions on the FICO Bankcard Score algorithm. These industry-specific calculations weight your success with similar loans more heavily and result in scores with a wider range – from 250 to 900 – than the base FICO score.3

Both FICO and VantageScore credit score calculations are updated regularly to reflect changes in credit reporting and average personal financial habits.


The Takeaway

Credit score calculations are based on five areas of credit behavior: payment history, credit utilization, how long you’ve been using credit, the mix of credit types you use, and how much new credit you’ve applied for lately. To improve your credit score, experts advise you to pay credit cards and loans on time, use only 30% or less of your available credit, keep old accounts open, get a mix of loan types, and open new accounts wisely. 

Julie Anderson

Julie Anderson is a freelance writer with extensive writing and teaching experience in the technology field.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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