Understand the Credit Score Calculation to Help Build Your Credit
Once you understand the principles behind credit score calculations, you can begin working toward a good credit score with greater confidence. Although there are many credit scoring models, the two leaders are FICO and VantageScore, both of which issue scores ranging from 300 to 850. Scores above 670 are considered good to exceptional in the FICO model, which is more widely used by lenders.2
The algorithms for calculating your credit score are considered trade secrets. FICO shares the following general guidelines:3
- 35% is based on your on-time payment record.
- 30% is based on credit utilization.
- 15% is based on length of credit history.
- 10% is based on credit mix.
- 10% is based on recent borrowing inquiries.
Some of the best ways to build a good credit score are to pay your bills on time, keep your utilization low, and focus your efforts on a small and balanced portfolio of different types of debt.