How Credit Score is Calculated

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Understanding Your Credit Score: An Illustrative Calculator

Your credit score is a three-digit number that lenders use to assess your creditworthiness. It plays a crucial role in determining whether you’ll be approved for loans, credit cards, mortgages, and even rental applications, as well as the interest rates you’ll pay. A higher score generally means better terms and easier access to credit.

What Factors Influence Your Credit Score?

While the exact formulas used by credit scoring models like FICO and VantageScore are proprietary, they publicly disclose the key categories and their approximate weightings. Understanding these factors is the first step toward building and maintaining excellent credit.

  1. Payment History (Approx. 35%)

    This is the most significant factor. Lenders want to see a consistent track record of paying your bills on time. Late payments, bankruptcies, foreclosures, and collections can severely damage your score.

    • Positive: Always paying on time, every time.
    • Negative: Missing payments, having accounts sent to collections, bankruptcies.

  2. Amounts Owed / Credit Utilization (Approx. 30%)

    This factor looks at how much credit you’re using compared to your total available credit. It’s often expressed as a credit utilization ratio. A lower ratio (e.g., below 30%) is generally better.

    • Positive: Low balances on credit cards, using a small percentage of your available credit.
    • Negative: Maxing out credit cards, high balances across multiple accounts.

  3. Length of Credit History (Approx. 15%)

    Generally, the longer your credit history, the better. This factor considers the age of your oldest account, the age of your newest account, and the average age of all your accounts.

    • Positive: Long-standing accounts in good standing, a mature credit profile.
    • Negative: A very short credit history, closing old accounts.

  4. New Credit (Approx. 10%)

    This factor looks at how many new credit accounts you’ve recently opened and how many hard inquiries have been made on your credit report. Opening too many accounts in a short period can signal higher risk.

    • Positive: Infrequent applications for new credit, allowing time between applications.
    • Negative: Numerous hard inquiries, opening multiple new accounts in a short timeframe.

  5. Credit Mix (Approx. 10%)

    Lenders like to see a healthy mix of different types of credit, such as revolving credit (credit cards) and installment loans (mortgages, auto loans, student loans). This demonstrates your ability to manage various forms of debt responsibly.

    • Positive: A diverse portfolio of credit accounts (e.g., credit cards, mortgage, auto loan).
    • Negative: Only having one type of credit, or very few accounts overall.

Illustrative Credit Score Impact Calculator

Use this calculator to see how different aspects of your credit profile might impact a hypothetical credit score. Please note: This calculator provides an illustrative estimate based on publicly known credit scoring factors and their general weightings. It does NOT generate your actual FICO or VantageScore credit score, as those formulas are proprietary.

Payment History (Approx. 35% Impact)

Amounts Owed / Credit Utilization (Approx. 30% Impact)

Length of Credit History (Approx. 15% Impact)

New Credit (Approx. 10% Impact)

Credit Mix (Approx. 10% Impact)

Illustrative Credit Score:

Enter values and click ‘Calculate’

How to Improve Your Credit Score

Improving your credit score is a marathon, not a sprint. It requires consistent, responsible financial behavior over time. Here are key strategies:

  • Pay Bills On Time: This is paramount. Set up automatic payments or reminders to ensure you never miss a due date.
  • Keep Credit Utilization Low: Aim to keep your credit card balances below 30% of your available credit, ideally even lower (e.g., under 10%).
  • Don’t Close Old Accounts: Older accounts contribute positively to your length of credit history. Keep them open, especially if they have no annual fee.
  • Limit New Credit Applications: Only apply for credit when you genuinely need it. Each hard inquiry can slightly ding your score temporarily.
  • Diversify Your Credit: Once you have a solid credit history with revolving accounts, consider adding an installment loan (like a small personal loan) if it makes financial sense for you, to demonstrate your ability to manage different credit types.
  • Regularly Check Your Credit Report: Review your credit reports from Equifax, Experian, and TransUnion annually for errors. You can get free reports at AnnualCreditReport.com. Dispute any inaccuracies immediately.

By understanding these factors and consistently practicing good credit habits, you can work towards a healthier credit score and unlock better financial opportunities.

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function calculateCreditScoreImpact() {
// Get input values
var onTimePaymentsRatio = parseFloat(document.getElementById(“onTimePaymentsRatio”).value);
var majorDerogatoryMarks = parseFloat(document.getElementById(“majorDerogatoryMarks”).value);
var totalCreditLimit = parseFloat(document.getElementById(“totalCreditLimit”).value);
var totalCreditUsed = parseFloat(document.getElementById(“totalCreditUsed”).value);
var oldestAccountYears = parseFloat(document.getElementById(“oldestAccountYears”).value);
var averageAccountYears = parseFloat(document.getElementById(“averageAccountYears”).value);
var hardInquiriesLast2Years = parseFloat(document.getElementById(“hardInquiriesLast2Years”).value);
var newAccountsLast12Months = parseFloat(document.getElementById(“newAccountsLast12Months”).value);
var revolvingAccountsCount = parseFloat(document.getElementById(“revolvingAccountsCount”).value);
var installmentAccountsCount = parseFloat(document.getElementById(“installmentAccountsCount”).value);
// Validate inputs
if (isNaN(onTimePaymentsRatio) || isNaN(majorDerogatoryMarks) || isNaN(totalCreditLimit) ||
isNaN(totalCreditUsed) || isNaN(oldestAccountYears) || isNaN(averageAccountYears) ||
isNaN(hardInquiriesLast2Years) || isNaN(newAccountsLast12Months) ||
isNaN(revolvingAccountsCount) || isNaN(installmentAccountsCount)) {
document.getElementById(“creditScoreResult”).innerHTML = “Please enter valid numbers for all fields.”;
return;
}
// Ensure non-negative values where appropriate
onTimePaymentsRatio = Math.max(0, Math.min(100, onTimePaymentsRatio));
majorDerogatoryMarks = Math.max(0, majorDerogatoryMarks);
totalCreditLimit = Math.max(0, totalCreditLimit);
totalCreditUsed = Math.max(0, totalCreditUsed);
oldestAccountYears = Math.max(0, oldestAccountYears);
averageAccountYears = Math.max(0, averageAccountYears);
hardInquiriesLast2Years = Math.max(0, hardInquiriesLast2Years);
newAccountsLast12Months = Math.max(0, newAccountsLast12Months);
revolvingAccountsCount = Math.max(0, revolvingAccountsCount);
installmentAccountsCount = Math.max(0, installmentAccountsCount);
var illustrativeScore = 300; // Base score, typical minimum
// — Payment History (Approx. 35% Impact) —
// Max potential points for this category: ~192.5 (from 35% of 550 range) + 105 (perfect history bonus) = 297.5
if (onTimePaymentsRatio >= 99) {
illustrativeScore += 192.5; // High impact for near-perfect
} else if (onTimePaymentsRatio >= 95) {
illustrativeScore += 134.75; // Good impact
} else if (onTimePaymentsRatio >= 90) {
illustrativeScore += 77; // Moderate impact
} else {
// No points added, or even negative if very low
}
if (majorDerogatoryMarks === 0) {
illustrativeScore += 105; // Significant bonus for no derogatory marks
} else if (majorDerogatoryMarks === 1) {
illustrativeScore -= 100; // Significant penalty
} else {
illustrativeScore -= 200; // Severe penalty
}
// — Amounts Owed / Credit Utilization (Approx. 30% Impact) —
// Max potential points for this category: ~247.5 (from 30% of 550 range)
var utilizationRatio = 0;
if (totalCreditLimit > 0) {
utilizationRatio = (totalCreditUsed / totalCreditLimit) * 100;
}
if (utilizationRatio < 10) {
illustrativeScore += 247.5; // Excellent utilization
} else if (utilizationRatio < 30) {
illustrativeScore += 173.25; // Good utilization
} else if (utilizationRatio < 50) {
illustrativeScore += 99; // Fair utilization
} else if (utilizationRatio = 10) {
illustrativeScore += 82.5; // Very long history
} else if (oldestAccountYears >= 5) {
illustrativeScore += 55; // Long history
} else if (oldestAccountYears >= 2) {
illustrativeScore += 27.5; // Moderate history
}
if (averageAccountYears >= 7) {
illustrativeScore += 41.25; // High average age
} else if (averageAccountYears >= 3) {
illustrativeScore += 20.625; // Moderate average age
}
// — New Credit (Approx. 10% Impact) —
// Max potential points for this category: ~82.5 (from 10% of 550 range)
if (hardInquiriesLast2Years <= 1) {
illustrativeScore += 41.25; // Few inquiries
} else if (hardInquiriesLast2Years 0 && installmentAccountsCount > 0) {
illustrativeScore += 82.5; // Good mix
} else if (revolvingAccountsCount > 0 || installmentAccountsCount > 0) {
illustrativeScore += 41.25; // Some credit, but not a diverse mix
}
// If both are 0, no points added for mix
// Clamp the score between 300 and 850
illustrativeScore = Math.max(300, Math.min(850, illustrativeScore));
document.getElementById(“creditScoreResult”).innerHTML = Math.round(illustrativeScore);
}

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