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How Your Credit Score Is Calculated (FICO,VantageScore)

Your credit score is one of the most important indicators of how much a lender can trust you as a borrower. How The lender calculates your credit score?
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: June 3, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: June 3, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

According to Experian data, the average credit score for United States residents was 714 across all age groups. In the table below you can see a breakdown per age:


You probably know that: Your credit score is one of the most important indicators of how much a lender can trust you as a borrower. When banks give loans to borrowers, the credit score often determines whether to give it or not; it can also affect the terms and conditions of the loan.

There are different variations of credit score, but the most common one is the so-called FICO score, developed by Fair Isaac Company. It usually ranges between 300 and 850 – the lower – the worse, the higher – the better.

One of the essential things to know is that your credit score does not reflect all the information about you – for example, your income or employment. Yes, they might be considered, but they are not included in the credit score. 

Why Your Credit Score Matters?

Your credit score may be just a number, but those three digits have a significant impact on many aspects of your daily life. Your credit score will follow you wherever you go, whether you want to buy a car, get a job, or even rent an apartment. Having good credit is advantageous in many ways, whereas having bad credit can cost you money in unexpected ways.

Your credit score is used by lenders to determine your creditworthiness. Your credit score influences whether or not you are approved for credit cards, loans, mortgages, and auto loans, as well as the interest rate and terms that lenders may assign you if you are approved.

When you apply for a new apartment or a new policy, your credit score may be checked by insurance companies, landlords, and employers. In these cases, a good credit score indicates your overall dependability and responsibility.

You can use a good credit score to get a good deal on loans, credit cards, insurance premiums, apartments, and cell phone plans. Bad grades can force you to forego opportunities or pay more.

Credit score calculation
5 factors included in your credit score: payment history, level of debt, length of credit history, credit mix and recent inquiries (Photo by ReallyKunal/Shutterstock)

5 Factors Determine Your Credit Score

There are five main components which comprise your FICO credit score –  payment history, length of credit history, new credit inquiries, the level of debt and the types of accounts you have.

Let's look at each one of them in detail.

1. Payment History (30-35%)

It accounts for 30-35% of the whole credit score. Usually, this is the most important factor when determining a credit score since most lenders are primarily concerned if you are able to make payments on time.  Your payment history will show all (if any) late payments, missed ones, bankruptcies and everything regarding your loans and bills. If you miss a payment, that will affect your score negatively.

Payment history shows five main indicators:

  • All credit cards, retail accounts, installment loans and mortgages and all the payment information concerning them.
  • Information about previous bankruptcies, liens, suits and delinquencies.
  • If you have had delinquencies, how much time have they have been overdue?
  • How much money do you own on delinquencies or collection items.
  • How many past due items are listed on your credit report.

2. The Level Of Debt (25-30%)

This is the second main criterion that determines a credit score and makes up between 25 and 30 %. This factor measures the total amount of debt a borrower has. It also shows a comparison between the total debt and credit limit, also known as credit utilization. The higher a borrower's credit utilization, the lower the credit score; the more you max out – the lower your credit score.

If you want to keep your score high, you have to keep your credit balance at approximately 30% or less of your credit limit. For instance, if your credit limit is $15,000, try to spend less than 5,000 per month.

In addition to staying away from your credit limit, the closer you are to paying off a loan (which is part of the total debt), the higher your score gets.

3. Length of Credit History (10-15%)

This factor makes up usually 10-15% of your credit score. Do not underestimate this one just because it is only a small part of your credit score. It shows the history of each account you have had. The longer the history, the better.

There are three important things that affect this factor:

  • the period in which your accounts have existed
  • the period in which certain types of accounts have existed
  • are these accounts still active or not

The above-mentioned only proves that borrowers who have just taken out their first loans cannot have a very good length of credit history. Therefore, experience and time are important when determining this factor.

4. Credit Mix (10%)

This component comprises up to 10% of your credit score. If a borrower has different types of accounts, this is a good sign that he can manage well a mix of credit.

FICO, however, warns borrowers that they shouldn't open accounts at all costs in an attempt to improve their score. This, on the other hand, might have a negative impact on your length of credit history and can also damage the recent credit inquiries.

Here you have to watch out for:

  • What types of credit accounts you have
  • How many credit accounts you have

5. Recent Credit Inquiries (10%)

The last factor, also determining 10% of your overall FICO credit score, is the recent credit inquiries you have made. This indicator reflects how many applications for new credit within a year you have made.

If you have opened too many accounts in the past one year, your lender might see you as a borrower who has financial problems and is risky. This will also lower your account age and will affect adversely your FICO score. However, you can request a credit report directly from your reporting agency without negatively affecting your score.

Bear in mind that inquiries made by your creditors are not recorded and are not taken into account when calculating this component. Also, if a borrower wants a copy of his credit history, it will not hurt your score. In addition, not all inquiries affect it.

There are three main important things regarding this component:

  • Not all inquiries are included in the calculation
  • Usually, inquiries have a small impact on the overall score
  • You can do “rate shopping”
  • Only inquiries made in the last 12 months are calculated


What Isn’t Included in Credit Score?

We mentioned briefly above what is included in a credit score, but you might be wondering what it doesn’t include. Credit scores are all about finances, so they don’t include many other personal things such as financial information that is not related to debt.

This includes your income and employment information. Although many lenders will ask about that as well. Credit reports also do not include medical information, expired financial information, marital status, or education information.

The only public information that is included in bankruptcy. This will drop off in 7-10 years depending on what kind you have.

Why Do I Have 2 Credit Scores?

You have 2 credit scores because one is reported using the FICO model while the other is reporting using the Vantage Score. Both companies use the same factors to determine your credit score, but they weigh the formulas differently.

This is why you will find that the scores are a little different from each other. However, they shouldn’t be too different. Each report will use your credit card history, your payment history, and your credit card utilization to create a score for you.

Vantage or FICO: Which Is Most Important?

This doesn’t have an exact answer because every company or lender will check their own preferred score. However, FICO scores are used in about 90% of decisions. So having a good FICO score is considered to be more important than a Vantage Score.

Of the 3 major credit bureaus, there isn’t a clear favorite. Experian, Equifax, and TransUnion are the 3 main credit bureaus. Your score among them might differ slightly because not every company reports to all 3 bureaus.

Checking your FICO score directly will give you a better picture of what you might be able to borrow more so than your credit score from one of the bureaus.

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Vantage or FICO: How They Compare?

Even though the FICO credit score is the major one, there are others. The three credit bureaus, Experian, TransUnion, and Equifax created a scoring model trying to compete with FICO – VantageScore.

RatingFICO ScoreVantage Score
Very Good740-799661-780

A credit score is a snapshot of your credit risk at a specific point in time. It can assist lenders in determining whether lending you money is a good investment. Given that both FICO and VantageScore credit scores serve the same purpose, it's not surprising that they share a number of characteristics.

FICO scores range between 300 and 850. Initially, VantageScore credit scores had a different numerical scale (501 to 990). VantageScore 3.0 and 4.0, on the other hand, used the same 300-850 scale as FICO.

Higher scores are better in both the FICO and VantageScore models. Higher credit scores make it easier to qualify for financing and receive competitive loan offers from lenders. Indeed, the lifetime value of a good credit score could save you tens of thousands, if not hundreds of thousands, of dollars.

Credit scores are influenced by similar factors regardless of brand. These details include information such as your payment history, credit utilization ratio, account age, account mix, and more.

Despite the fact that FICO and VantageScores serve similar functions, they are not the same. Consider them the Google and Facebook of the financial world. The following are some key distinctions between the two credit score brands.

As previously stated, FICO and VantageScore credit scores have the same range of 300 to 850. Higher risk scores indicate lower risk. However, lenders' interpretations of the two types of scores may differ.

The definition of a good credit score varies depending on the lender. It may also vary depending on the credit score brand. A 670 FICO Score, for example, may be sufficient to qualify for a specific credit card. However, for a different credit card issuer to approve your application, you may need a credit score of 680 VantageScore.

A credit scoring model examines your credit report and assigns you a number of points based on the information it discovers. You can earn points for each factor that the scoring model takes into account (e.g., payment history, credit utilization, length of credit history, credit inquiries, etc.) The items found on your credit report are assigned different values (or weights) by the FICO and VantageScore models.

To reduce the impact of credit shopping on your scores, newer FICO versions count multiple credit inquiries of the same type within a 45-day period as a single inquiry. This is especially useful when shopping around for a large loan, such as a car loan, because multiple auto loan inquiries within that window should only count as one hard inquiry.

Multiple inquiries, even for different types of loans, within a 14-day period are treated as a single inquiry by VantageScore. Multiple inquiries on your credit reports for the same type of loan or credit that span more than 14 days may have a greater impact on your VantageScore  credit scores than on your FICO  scores.

Consumers must have one or more accounts that have been open for at least six months and at least one account that has reported to the credit bureaus within the last six months in order to have FICO scores (plus no indication on your credit reports of being deceased). Otherwise, FICO will not generate your credit scores.

The VantageScore model, on the other hand, may be able to score consumers who are new to credit or use credit infrequently. VantageScore can use only one month's worth of data and one account reported within the previous 24 months.

How Can I Get my Credit Score?

Credit scores can be obtained from a variety of sources, including lenders, credit bureaus, non-profit credit counselors, and personal finance websites such as Credit Karma. However, keep in mind that some providers charge a fee for access to your scores, whereas others provide them for free.

It's also a good idea to figure out what grades you're getting. Some sources provide actual VantageScore or FICO credit scores, whereas others use scores designed for educational purposes only and are not what lenders may use. Educational scores are sometimes similar to VantageScore and FICO credit scores.

Credit Karma provides VantageScore 3.0 credit scores from TransUnion and Equifax, while some credit card issuers or banks may offer access to your FICO scores from specific bureaus. So be sure to check which scoring model is being used and which credit reports your scores are based on.

How High Credit Score Can Save You Money? Examples

Higher interest rates from bad or mediocre credit can cost more than six figures over the course of a person's life. For example, according to Informa Research Services' interest rates:

  • Someone with a FICO score of 620 would pay $65,000 more on a $200,000 mortgage than someone with a FICO score of 760 or higher.
  • A borrower with a lower credit score would pay $5,100 more on a five-year, $30,000 auto loan.
  • A $50,000 15-year home equity loan would cost a low-score borrower $22,500 more than a high-score borrower.

In this chart compiled with LendingTree customer data, you can see that those with a 720+ credit score pay an average of 7.63%. At the other end of the scale, for those with a poor credit rating of less than 560, the rate shoots up to an eye-watering 113%.



You cannot combine credit scores together to buy a house. However, lenders will look at both your credit scores if you put both names on the application. Even if one partner has a high score, a really low score from the other partner can disqualify you from getting a mortgage.

If one partner has a credit score and enough income to qualify for the mortgage themselves, you might want to consider only applying with one name on the application. This could improve your odds of being approved and getting the mortgage you need to buy a house.

Even if you are married, you will have an individual and separate credit score. Credit scores are not combined for married couples. However, your partner’s spending habits and loans can still have an impact on your credit score.

If you have loans or credit cards with both your names, they will be reported to the bureaus for both individuals. This means if your partner does not make their payments on a card that also has your name on it, it can affect you negatively.

The same rules apply to auto loans, mortgages, and bankruptcies.

This really depends on the bank. Each bank and credit union has the freedom to decide what credit score they want to use when they are determining who is eligible for loans and other funding.

Since 90% of lenders use the FICO score, your bank probably uses FICO as well. If you want to know which score they use before applying for lending, you can always call and ask or visit one of the branches.

FICO is considered to be more accurate and is used by 90% of lenders when they are checking credit reports to see who qualifies for lending and who doesn’t. FICO takes many different factors into consideration including your credit card usage, how many accounts you have, your payment history, and your debt-to-income ratio.

FICO scores are usually updated every day, so you might find that it changes every time you check it. They are considered to be extremely accurate and help lenders make important decisions when it comes to funding and financing.

This will depend on the loan you are applying for and how large it is. Some companies and lenders will be more willing to give mortgages for lower credit scores than others. To take out a mortgage from most banks and lenders though, you will need a credit score of at least 620.

A 620-credit score will ensure you have the best interest rates and low minimum payments. Lenders might still offer you a loan with a score that’s lower, but you will have high-interest and less than ideal payback terms.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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