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Credit

What goes into a credit score

6 min read · General education, not legal or financial advice

Hands typing on a laptop on a wooden café table beside an iced coffee

Credit scores are often talked about as if they were a single, fixed number. In fact there are many scores, built by different companies with different formulas, and the exact formulas are not public. What is public is a general description of the kinds of information scoring models look at. This article explains those general categories as federal agencies and FICO describe them, why one person can have many different scores and what scores do not consider. It doesn't predict any score or suggest ways to change one.

What a credit score is

The Consumer Financial Protection Bureau (CFPB) describes a credit score as a prediction of your credit behavior. Companies calculate a score using a mathematical formula, called a scoring model, applied to the information in a credit report. The Federal Trade Commission (FTC) adds that scoring models compare that information to the credit behavior of people with similar profiles.

A score is therefore a summary of a report, not a separate record. If the information in a report changes, a score calculated from it can change too. Because the score is built from the report, the article How to read your credit report is a useful companion to this one.

Why there is no single score

The CFPB says plainly that there is not just one credit score. Scores can differ because of:

  • The data used. Each nationwide bureau keeps its own file, and creditors are not required to report to all three, so a score built from one bureau's file can differ from a score built from another's.
  • The scoring model. Different companies build different models, and the same company releases new versions over time.
  • The type of loan. The CFPB notes that scores can also vary with the type of loan being considered.
  • The day it is calculated. A report changes as furnishers send new information, so a score calculated today may differ from one calculated last month.

The CFPB notes that most credit scores range from 300 to 850, and the FTC says the score most lenders use is the FICO score. The FTC also mentions credit-based insurance scores, which some insurers use when deciding whether to offer a policy and what premium to charge.

The general factor categories

Federal agencies describe the information scoring models typically consider in broad terms. The CFPB lists payment history, amounts owed, the number and types of accounts, how long accounts have been open, how much of the available credit is being used, recent applications for credit, and collections, foreclosures or bankruptcies and how recent they are. The FTC's description covers the same ground. Grouped together, the categories look like this.

Payment history

This category concerns whether bills on credit accounts have been paid on time. The FTC notes that late payments, accounts sent to collection and bankruptcies are likely to have a negative effect. The payment history grid on a report, with each month marked on time or late, is the raw material for this category.

Amounts owed

This category looks at how much is owed across accounts. For revolving accounts such as credit cards, models also look at how much of the available credit is in use, a figure often called credit utilization. The FTC says that balances close to credit limits may lower a score. Utilization is usually calculated by dividing total balances by total limits; for example, a $500 balance on a card with a $2,000 limit is 25 percent utilization. That figure is invented for illustration.

Length of credit history

This category considers how long accounts have been open. The FTC notes that a short credit history may have a negative effect, but that factors such as timely payments and low balances can offset it.

New credit and recent applications

Each application for credit generally shows up as a hard inquiry on a report. The CFPB explains that most scoring models look at how recently and how frequently a person has applied for credit. Soft inquiries, such as checking your own report or a prescreened offer, don't affect scores.

Types of credit

Models also look at the number and types of accounts, such as credit cards, car loans and mortgages. The FTC notes that some scoring systems weigh loan types differently and that having too many credit card accounts may have a negative effect.

How FICO describes its own categories

FICO publishes its own description of what goes into a FICO Score. It names five categories with the following percentages:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

These figures are FICO's own published description of its scores, not a rule that applies to every scoring model. FICO itself says that the importance of these categories may vary from one person to another. Other companies' scoring models describe their factors in their own ways.

What credit scores leave out

FICO states that its scores are calculated only from the information in a credit report, apart from one product that also considers banking data a consumer chooses to share. FICO lists information its scores do not consider, including race, color, religion, national origin, sex, marital status, age and where a person lives, as well as salary, occupation, employer and employment history. The FTC adds that it is illegal for creditors to consider certain factors such as race, sex, marital status, national origin or religion.

That does not mean income never matters to a lender. FICO notes that lenders may weigh factors such as income in their own decisions, and the FTC notes that some lenders, such as mortgage lenders, look at things like the down payment, total debt and income alongside a score.

When a score affects a decision

The FTC explains that if a business denies an application, or offers less favorable terms, based on information in a credit report, it must send a notice that includes the contact information of the bureau that supplied the report. If a credit score was a factor in the decision, the notice must include the score. These notices are one way people learn which score a lender used and what it was.

Errors and scores

Because a score is calculated from a report, inaccurate information in the report can feed into the score. The Fair Credit Reporting Act gives consumers the right to dispute inaccurate or incomplete information with the bureau and with the business that supplied it. The article Disputing credit report errors yourself explains how that process works. The dispute process concerns the information in a report rather than the score calculated from it.

Common misunderstandings

  • "Checking my own report lowers my score." According to the CFPB, a person checking their own report is a soft inquiry and doesn't affect credit scores.
  • "There is one official score." The CFPB says there is not just one score; many models exist, built on different data.
  • "My income is part of my score." FICO lists salary and employment among the things its scores do not consider, although lenders may look at income separately.
  • "A free report includes my score." The FCRA does not require bureaus to include scores in the free disclosure of a person's file.

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