how is my credit score calculated

5 things that go into your credit score (#2 is debt)

Bethany Ramos Credit Score, Finance, First-Time Homebuyer, Home Buying, Homeowners

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how is my credit score calculated

Some takeaways:

  • Today’s credit score, AKA the “FICO score,” was introduced in 1989 by the software company FICO.
  • U.S. consumer reporting agencies Equifax, Experian, and TransUnion track these scores based on credit information they provide to FICO.
  • Individual scores generated by FICO for each of these agencies can and often do vary related to access to different records.
  • However, all scores fall within a 300 to 850 range, with 700 or higher being recognized by most lenders as an indicator of financial health.
  • Ninety percent of the largest U.S. financial institutions use FICO scores to make credit decisions.

How is my credit score calculated? FICO’s 5 biggies.

Sadly, credit score misinformation is everywhere. Up to 24 percent of renters think they need a 780 to 800 credit score to get a mortgage. This is far from true.

Experian data shows that only 25 percent of Americans have a “very good” FICO score ranging from 740 to 800. Sixteen percent of people have a “very poor” score from 300 to 579. Eighteen percent have a “fair” score from 580 to 669. Twenty-one percent have a “good” score from 670 to 739. And 20 percent have an 800 to 850 score ranked as “exceptional.”

Good thing a multitude of mortgage programs exist to meet a variety of credit requirements. VA, FHA, and USDA loans all have low- or no-down-payment options, with a flexible credit score minimum of 580 or lower. None of these credit score requirements exceed 700, and right now, at least 84 percent of people have a credit score strong enough to buy a house.*

Who said credit had to be hard? Download LoanFly and get your score for free.

Your credit score might be checked for a home loan, property rental, new job, credit card, insurance, cell phone service, and cable/utilities. A mortgage lender is likely to use a tri-merged credit report, drawing info from all three bureaus. Then, a lender may take your lowest or middle score to determine the type and amount of mortgage you qualify for.

Your FICO score is a major factor in deciding whether your loan is approved. And at what interest rate. A slight variation of one to two percentage points can make thousands of dollars’ worth of difference in interest payments over the life of your mortgage. Getting to know what goes into your credit score gives you the chance to save money by taking steps to maintain it or improve it.

FICO determines each credit score based on five factors weighted as percentages:

1. Your payment history (35 percent)

How consistently are you making payments? That’s what counts the most. Late payments on all your previous and current credit accounts lower your score, so be sure to always pay on time.

2. How much you owe (30 percent)

Next up, your balance-to-limit ratio: How much do you presently owe on all of your open accounts? How many balances do you have? How much available credit are you using? The goal here is to lower the percentage of your total credit limit that you still owe, typically aiming to keep card balances to less than 30 percent of their limit.

3. Length of credit history (15 percent)

The longer you’ve had active credit and made timely payments, the better your score will be. There’s not much you can do now to change how long you’ve had credit, but you can focus on being as responsible as possible with the way you currently manage your money.

4. New credit (10 percent)

Whenever you open a new line of credit, an inquiry is performed that negatively affects your score. The only exception is when you’re shopping for a home: All mortgage inquiries within a 30-day period count as a single pull. To maximize your score, minimize hard inquiries.

5. Other factors (10 percent)

Miscellaneous items can also have a minor influence on your score, i.e., using a variety of credit types like home and auto loans, cards, and personal lines of credit. It’s probably not a good idea to open a lot of new accounts just for this reason — because of the new credit penalty. But if you already have a diverse history, you’ll probably have a higher score than if you didn’t.

Unhappy with your credit score? Try doing this.

One of the first steps to improving your credit score is actually viewing your credit history. There’s no reason to not do it since you have access to a free copy from all three reporting companies once a year at

You can also contact bureaus individually:

Keep in mind that companies that charge for credit reports are not only requiring fees you don’t otherwise have to pay, but they often don’t provide records that are as accurate as those of these three main agencies.

After receiving your reports, review them carefully. Check for incorrect or late payments and credit limits, missing accounts, and fraud so your credit history and FICO score accurately reflect your current financial activity. If you see any mistakes, notify the appropriate credit bureau within 30 days of the report date. There’s no cost associated with setting the record straight — it’s your right.

Working on your credit score? Hold onto your seat.

Your credit score can open or close doors whether you’re buying a house, looking for a job, or ordering cable. Knowing how it works puts you in control. Once you start improving your credit, get ready because your house-hunt is going to pick up speed. By boosting your score, you’re giving yourself more buying power. You’re also making yourself potentially eligible for many more affordable mortgage programs. Use LoanFly to check your score and let the fun begin.

*”What Credit Score Do You Need To Buy A House?” Keeping Current Matters, March 2019.

For educational purposes only. Please contact your qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.

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