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How Your Credit Score Is Calculated

As you’re probably well aware, your credit score makes up a huge part of your ability to qualify for things like credit cards and other loans, but most people probably don’t know exactly how it’s calculated.

Your credit score is based on your borrowing history, but do you know what aspects are valued more than others? The formula is actually pretty easy to remember, and as long as you know what is expected of you to keep your credit score healthy, you’ll be in a better position to do so.

[Related Article: Rebuilding Credit in a Hurry -- Is It Possible?]

Your payment history: 35 percent

This is the single biggest factor used to determine your credit score. If you pay all your bills on time and in full, you won’t have a problem. But miss a payment, your rating will take a serious hit.

Your credit utilization: 30 percent

You might be wondering what “credit utilization” is, but it’s just a technical term for how much of your credit limit you’re using. The more you use, the worse this aspect of your score will be. Experts recommend keeping it close to 10 or 20 percent to get the most benefit. Don’t believe the myth about lenders wanting you to carry some amount of debt on your cards. The less you have, the better.

Length of your credit history: 15 percent

The longer you’ve had your cards or other loans, the better off you’ll be. That’s why those who have very short borrowing histories have trouble getting approved, and why it’s not a good idea to close your old credit cards even when you pay off the balance and have no intention of using them regularly again.

How much new credit you have: 10 percent

Making a number of attempts to qualify for a new line of credit will ding your score, because lenders generally see new credit cards as a sign that you’re having problems with your cash flow. It typically takes between six and 12 months to clear a line of credit’s “new” status.

How many types of credit you have: 10 percent

The more kinds of credit you have in your name—like credit cards, student loans, auto loans, mortgages, etc. -- the better off you’ll be as far as this aspect is concerned.

--- provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit to sign up for your FREE Credit Report Card and find out where you stand today!

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