6 Min Read | Updated: February 16, 2024
Originally Published: January 31, 2020
What Is a Credit Score and How Is it Defined?
Understanding how "credit score" is defined, how credit scores work, and how they’re calculated can help you establish a positive financial future.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
A credit score is a number that summarizes your credit history.
There are two dominant credit scoring models—FICO and VantageScore—and many other lesser-used models.
Because of variations in how scores are calculated and reported, you may have hundreds of credit scores.
Understanding how scores are calculated can help you take action to establish a positive financial future.
What is a credit score? The simple answer is: a three-digit number that summarizes your credit history.1 Your credit score is important because it helps lenders predict the likelihood you might fall 90 days or more behind in your credit card or loan payments during the next two years.2 That’s why lenders sometimes call them risk scores.
Credit scores generally fall between 300 and 850—and everyone has many credit scores.1 Given all the variations in scoring models and other factors, experts say you likely have hundreds of credit scores.3 If you don’t know your score, read “How to Check Your Credit Score for Free.”
Because those three-digit numbers can heavily influence whether you are approved to borrow money, how much you’ll pay if you are approved, and even non-credit issues, such as whether you can get a job or a place to live, it’s vital to understand what a credit score is and the principles of how your score is determined.1 Without that information, you could unknowingly take actions that might negatively affect your financial future.
Your credit scores will be different depending on:1
- The scoring model used to calculate it (the two best-known being FICO and VantageScore)
- The credit bureau whose report is used to generate your credit score
- The exact time your credit score is requested
FICO is the Credit Scoring Model Used Most Often
Credit scoring was developed by the Fair Isaac Corp., which introduced its namesake FICO score in 1989.4 There have been numerous iterations since then. FICO says its score is used by 90% of top U.S. lenders.
To have a FICO credit score, you must have a credit account that’s at least six months old and activity on an account within the previous six months—they don’t need to be the same account.6 If you meet that criteria, the rest of the formula for calculating your FICO score remains a trade secret.7 However, FICO does share the categories it uses to group data and how it weights those categories. Of your total score:6
- 35% is your payment history. It reflects whether you have paid your creditors on time.
- 30% is what you owe. This portion is shaped by your credit utilization, meaning how much of your available credit you have used.8 The less you’ve used, the stronger this part of your score will be. Some experts suggest you use 30% or less of your available credit to score well.9
- 15% is the length of your credit history. It’s based on how long your accounts have been open, and the timing of your most recent account transactions. A longer credit history means a higher score.
- 10% is your credit mix. This category considers the various ways in which you’ve borrowed money, such as credit cards, installment loans, mortgages, retail accounts and so on. A diverse mix works in your favor.
- 10% is your new credit. This reflects the credit inquiries you’ve made and the new accounts you’ve opened. A lot of activity in this category will lower your score.
Keep in mind that these general guidelines are not absolute. FICO says the weighting varies depending on the exact details of your credit profile.10 For example, scores for credit newbies are calculated differently than those for people with long-established credit.10 Also, there are three slightly different versions of the basic FICO score, one tailored for each of the three credit reporting agencies.2 FICO also calculates somewhat differently for its various industry-specific scores. In all, FICO says there are 20 different versions commonly used by lenders.10
The VantageScore is More Consistent
FICO’s chief competition is VantageScore. Introduced in 2006, it was developed jointly by the three major credit reporting bureaus.11 Today, it’s independently managed by VantageScore Solutions, which is owned equally by the three bureaus.11 VantageScore Solutions says its credit score is used by more than 3,000 financial companies.11
Although its initial scores ranged from 501 to 990, the commonly used VantageScore 3.0 and the most-current VantageScore 4.0 mirror FICO’s 300 to 850 range.12 (For more on the implications of these ranges, see “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?”) VantageScore also uses similar categories to organize data, though it weighs them somewhat differently than FICO. Rather than using percentages, VantageScore relies on descriptive phrases to break down your score. In descending order of influence, those weightings are:13
- Extremely influential: Payment history
- Highly influential: Credit mix and total credit usage
- Moderately influential: New accounts opened
- Less influential: Balance and available credit
VantageScore also distinguishes itself by not having industry-specific versions.14 Still, VantageScore acknowledges there may be some differences in your score from one credit reporting company to another.15
Both FICO and VantageScore 4.0 are calculated solely on your credit history. Neither considers any other factor, such as age, race, gender, marital status, salary, occupation, or even financial assets.16
Different Credit Bureaus Produce Different Credit Scores
The data that’s used by the FICO or VantageScore model generally comes from one of the three largest credit reporting bureaus—Equifax, Experian, and TransUnion.6,17 These companies collect information from creditors about your debts and payments.17 Because creditors report different information to each bureau, at different times, your scores are likely to be different at each.17 Also, as mentioned above, each agency uses slightly different models.
Therefore, when you get your free credit score, you’ll want to know which bureau it came from. Your credit score also changes over time as new information is added to your file at each credit bureau.17
Because of all that, your credit score is fluid. If your score isn’t what you want it to be today, you can improve it over time by managing your credit responsibly.
The Takeaway
Your credit score is a numeric summary of your credit history used to predict your riskiness as a borrower. You likely have many credit scores, because of modest variations in how your credit history is gathered and reported and in how the two main scoring models—FICO and VantageScore—compute their results. Still, you have control over your credit score because it reflects the level of responsibility you bring to your own credit management.
1 “What is a Credit Score?,” Consumer Financial Protection Bureau
2 “The Difference Between VantageScore® Scores and FICO® Scores,” Experian
3 “Why Do I Have So Many Credit Scores?,” Experian
4 “The History of the FICO® Score,” MyFICO
5 “What is a FICO® Score?,” MyFICO
6 “FICO Score Education,” FICOScore
7 “How “Short Account History” Affects Your FICO Score,” Experian
8 “Understand the Ins and Outs of Credit,” FINRED
9 “Manage My Credit Card Effectively,” FDIC
10 “What's in my FICO® Scores?,” MyFICO
11 “About VantageScore,” VantageScore
12 “The Complete Guide to Your VantageScore,” VantageScore
13 “How Credit Scores Work,” VantageScore
14 “The VantageScore Model,” VantageScore
15 “Why Are My Credit Scores Different?,” VantageScore
16 “What Are the Different Credit Scoring Ranges?,” Experian
17 “What Are Credit Bureaus and How Do They Work?,” Experian
Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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