What Makes Up Your Credit Score?

Discover the Credit Information That Impacts Your FICO Credit Score

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Your credit score is a number that is calculated with information from your credit report and a special formula to represent how risky you are as a borrower. This score is one of the most important factors lenders use when determining whether or not to lend you money and under what terms (such as the interest rate). Though the exact formula used to calculate a credit score is unknown, familiarizing yourself with the things that impact your score will empower you to continue building a strong credit history or to improve it.

Who Calculates Your Credit Score?

Perhaps one of the best-known entities that calculates credit scores is the Fair Issac Corporation, better known as FICO. The Fair Issac Co. was the first company to offer a credit-risk model with a score. In fact, the concept of a credit score is so closely tied to the company that many simply use the terms FICO score and credit score interchangeably. The idea behind a FICO credit score is that an individual's score should reflect what predictive analysis suggests about the individual's future financial behavior, which is to say that credit scores are meant to help lenders predict borrower positive and negative behavior such as how likely that borrower is to pay their bills on time (among other behaviors).

To calculate a FICO credit score, FICO analysts use information provided by one of the three major credit reporting agencies in the United States, which include Experian, TransUnion, and Equifax.

FICO scores continue to be the most widely used credit scores among major lenders, but other credit scores are available and becoming more popular, such VantageScore.

What Makes Up a Credit Score?

The FICO credit score range is 300-850, meaning that any individual with a credit history will have a FICO score within that range.

Lenders interpret higher scores as representing less risky borrowers and lower scores as riskier borrowers. But what makes up that score? Essentially, the data collected from credit reporting agencies is grouped into five primary categories that each have their own weight, or importance, in calculating a credit score.

Those are five categories and their average respective weights are as follows:

  • Payment History – 35%
  • Total Amounts Owed/Credit Utilization – 30%
  • Length of Credit History – 15%
  • New Credit – 10%
  • Type of Credit in Use/Credit Mix – 10%

While the exact algorithm used to calculate a person's credit score varies, the above percentages provide a glimpse into how the types of behaviors and information that influence a credit score for on average. But there are certainly exceptions to these general weights. For instance, a person with little to no credit history such as a recent graduate, the relative importance of each of these five categories may be different. As a person's credit history grows, so too will the factors that impact their FICO score. 

That said, the bulk of a person's credit score generally comes from payment history and the total amounts that the person owes, which is not surprising it is obvious why lenders would want to know if a borrower has a history of paying their bills and whether they can use credit responsibly or if they take on too much debt.

This means late payments and high balances tend to have the greatest negative impact on your overall credit score.