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It's impossible to calculate a credit score yourself, but you can monitor your score for free—and the general factors that promote good scores are well known and worth understanding.
How Your Credit Score Is Calculated
The calculations used in commercial credit scoring systems such as the FICO® Score☉ and VantageScore® are extremely complex. Credit scoring algorithms, also known as scoring models, analyze the contents of one or more of your credit reports at the three national credit bureaus (Experian, TransUnion and Equifax). The models use highly sophisticated statistical analysis methods to look for patterns of behavior that are associated with failure to repay loans.
Credit scores are calculated using data in your credit reports, which are updated continually with new information related to your credit activity, including your use of credit cards, payment of loans and credit card accounts as well as any applications for new loans and credit. Credit scores taken a few days apart, and possibly even hours apart, can differ due to updated information such as a missed loan payment.
Because your creditors don't necessarily report to all credit bureaus uniformly, your credit reports aren't always exactly the same. But even if they used identical credit report data, different credit scoring models would likely produce different scores because each model uses its own proprietary calculations. The companies that produce credit scoring models revise them every few years to reflect changes in consumer behavior. The specific calculation methods of these formulas are guarded as trade secrets, but scoring companies openly share information on the factors that influence credit scores.
Factors That Affect Your Credit Scores
FICO® Score and VantageScore calculations treat their relative importance somewhat differently, but the most critical factors that influence credit scores are the following, ranked in order of significance:
- Payment history for loans and credit cards. This includes the number and severity of late payments. Late payments will have a greater negative effect on your credit score than any other single factor.
- Credit utilization. The total amount of outstanding debt you have relative to your credit limits is also known as your credit utilization ratio, and it plays a major role in determining your scores. To avoid negative effects on your credit scores, experts recommend keeping outstanding balances at or below 30% of each card's borrowing limit, but the lower your utilization, the better.
- Length of credit history. Lenders value borrowers with experience handling debt responsibly. A lengthy record of responsible credit usage (with minimal late or missed payments) tends to elevate scores more than a comparably short history of credit usage.
- Type, number and age of credit accounts. Generally speaking, a variety of loan types (installment loans as well as revolving credit accounts, for instance) will promote higher credit scores. This "credit mix" also speaks to experience with credit management.
- Number of recent inquiries. Inquiries are requests from lenders to check your credit report or credit score in connection with a loan application. Statistically speaking, applying for new credit is associated with greater risk of inability to pay bills. This factor typically only reduces credit scores by a handful of points, and its effects are typically reversed within a few months, as long as you continue to pay your bills on time.
- New credit accounts you've recently opened. Like credit inquiries, taking on new debt (or potential debt, in the case of a credit card account) is statistically linked to risk of missing payments. And like the impact of credit inquiries, the negative effect of this factor tends to fade within a few months, as long as you keep up with all required payments.
Severe derogatory events. Considered outside the scope of the everyday credit management factors listed above, bankruptcies, foreclosures and vehicle repossessions can have much more severe and lasting negative effects on your credit than any of the other considerations. Apart from causing major drops in your credit score, they signify to many lenders that you are a risky borrower, and they may impair your ability to get new loans or credit for several years.
How to Check Your Credit Scores
While it's helpful to keep in mind the factors that affect credit scores, and to avoid behaviors that can hurt them, the best way to keep track of your credit score is to check it regularly. Monitoring helps you track progress toward score improvement, and gives a good sense of how lenders will view you as an applicant.
If you check your FICO® Score using Experian's free tools, you'll also receive information about the specific factors in your Experian credit report that are preventing you from getting a higher score. This information can help you better understand your credit profile, and may suggest steps you can take to improve your scores over time.
While it's not possible to crunch the numbers yourself to figure out your credit score at home, it's easy to access your scores as determined by models such as FICO and VantageScore, and to identify behaviors that can help you improve them.