Credit Score Calculation

Credit score calculation

Many people are surprised to see that they don’t have just one credit score calculation. Credit scores can vary due to several factors such as score provided by the company, the data on which the score is based, and the method of calculating the score.

There are different types of credit score calculation used by lenders and vary due to the difference in the industry. For example, for example, you’re buying a car. When it comes to auto loans, that lender might use a credit score that places more emphasis on your payment history and debt you owed. even lenders may also use a mix credit score from the three major credit bureaus.

FICO credit scores are most commonly used. They are used internationally and the standard credit score is used by many lending institutions and consumers. Generally, these are the major factors considered in credit scoring calculations. Depending on the scoring model used, the weight each factor carries as far as impacting a credit score may vary.


The individual’s credit report helps to determine FICO credit score. Basically, It is divided into five categories:

  • Payment History – 35%
  • Amounts owed – 30%
  • Length of Credit History – 15%
  • New Credit – 10%
  • Types of Credit Used – 10%


Factors that affect Credit Score Calculation

Here is a breakdown of the factors of credit scoring calculation, keeping in mind there are many different credit scoring models.

Payment History

Your payment history is one of the important factors in your credit score. In fact, it carries roughly 35% of your credit scores which is more than any other single factor. Payment history is the record on your credit reports shows whether you have paid your bills on time or not. The history comes from your credit card payments, installment loans, finance company accounts and mortgages.

Lenders mostly check this as it gives them the idea that whether you will repay the loan or not. They won’t risk their money to that person whose credit score is low. If you have missed payments or late payments the nit will give the negative impact on your scores. However, this effect fades with the time if you include positive transactions in your report.


Debt Usage

The amount of debt you carry is also one of the important factors on your credit scores. It carries 30% of your credit scores. Well, a small amount of debt won’t damage your scores, but you should try to minimize your debt as much as possible if you want to improve your score.

So, The general rule is to keep the amount of debt you owe below at least 30%, it is really good if it is below 10%, of your available credit line. This confuses many people who pay their credit cards in full every month that their credit report shows a balance but they know they’re paid in full.

The amount that’s reported to the credit bureau is not the balance you are paying on interest charges. It is the matter of the credit utilization. well, Credit reports aren’t updated in real time. it takes some time up to 60 days for updated information to record in your credit reports. Therefore some people prefer to pay off their credit cards before the statement balance is created. It is done to show a $0 statement balance and a low utilization.

The Age of Your Credit

This term does not relate to your age. It refers to the age of your accounts that your credit scores consider. It means how well you manage your credit and this is one determiner of the credit score.  And in this, you have very little control over because time is the biggest influencer.

This factor carries roughly 15% of your credit scores. It looks at various aspects such as how long you’ve had various credit accounts and how you’ve managed them. Of course, it does not matter how long you had credit but managing it well is still very important.

Types of Accounts

It is also referred as credit mix which means different types of accounts appearing on your credit history. It carries about 10% of your credit scores. There are two major account types— revolving credit i.e. accounts with different payments each month based on a balance such as credit cards) and installment accounts (a loan with a fixed payment over a given span of time, like student loans).

There is no ideal type of a credit mix. It is because if something looks right in your credit profile may not be the same as others. It is not essential that you have to maintain all the types of accounts. But yes it gives the good impact that you can manage different types of the accounts. but it is advisable that you should take that much which you can manage.


New Credit

It carries about 10% of the credit score calculation. It refers to how many times you apply for credit accounts.  Opening or applying for many new credit lines in a short period of time can indicate an increased credit visit indicates high credit risk if you have applied for many times for new account in the short period of time. so manage it efficiently.

Related Topic: Order Free Credit Report

If you want to do credit card application, you can go with FinBucket

By | 2018-08-24T11:15:13+00:00 June 21st, 2018|Credit Score|0 Comments

About the Author:

Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.