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How Credit Scores Work

How do credit scores work? Use our interactive model to learn how the 3 credit bureaus calculate your credit score from dozens of important pieces of information.


How credit scores work

A credit score is calculated from details in a credit report, and indicates trustworthiness for things like borrowing money or making payments.


Score impact

Auto insurance

92% of auto insurance companies use credit scores to help determine premiums.

Example: Scores of 630 vs 760, on average, can incur a cost difference of $45 per month. $108.13 vs $62.96.

Credit cards

Most credit cards are only approved for those with very good or excellent credit scores.

Example: With a 630 score, the average credit limit is $2,277 while the percentage rate average is 21.45%. For 760, those numbers are $5,209 and 14.31% respectively.

Car loans

Auto loan interest rates change considerably with credit scores.

Example: On a $20,000 loan over 5 years, a 630 vs 760 credit score could be a difference of $3,420 – $57 per month. $25,320 total paid vs $21,900 over the life of the loan.


A higher credit score can result in a much lower mortgage payment.

Example: A credit score of 630 might have an interest rate of 5.197% where a credit score of 760 could have an interest rate of 3.608%. Over 30 years on a $300,000 loan, that would equal a difference of $101,520.00 – $282 every month. $592,920 total paid vs $491,400 over the life of the loan.

Public record and collection items

Public record and collection events can influence a credit report and resulting credit score.

Relevant items include bankruptcies; foreclosures; wage garnishments; and statutory and judgement liens.

Rent, utilities, and cell phones

Landlords, utility companies, and cell phone providers often check credit and may require a larger deposit or deny the application based on your credit score.



Full-file means both negative and positive activity is reported. Most banks, lenders, and credit card companies use full-file reporting.

Collections agency


Derogatory-only reporting means only negative activity is reported; this type of reporting can only decrease a credit score. Derogatory reports often come through collections agencies as utilities and cell phone companies do not usually report directly to credit bureaus.

Credit bureaus (credit report)

Credit bureaus collect, receive, and store information about you in a credit report (file).


Consumers: 890 million Business: 103 million Yearly: $4.8 billion


Consumers: 800 million Business: 88 million Yearly: $2.7 billion


Consumers: 55 million Business: 65 thousand Yearly: $1.5 billion

Score calculation (credit score)

Credit scores are calculated from patterns found in hundreds of thousands of past credit reports.


FICO (the Fair Isaac Corporation) is a data analytics firm whose credit products, used in 90% of lending decisions, carry the same name. The first modern credit score was created by FICO in 1989.

FICO score weighting:

35% Payment history
30% Credit utilization
15% Length of credit history
10% New credit
10% Credit mix


300-549 Bad
550-649 Poor
650-699 Fair
700-749 Good
750-799 Very good
800-850 Excellent

FICO exclusive:

Credit mix

Credit mix means having different types of accounts, such as loans (installment credit), and credit cards. Having different types of accounts indicates dependability in multiple categories.

Scoring factors used by both FICO and VantageScore:

Payment history

Late payments show on the report as negative remarks, and stay on the credit report for seven years. Many companies allow a 30 day grace period before late payments are reported.

Details about late payments are evaluated, like recency, amount owed, and quantity of late payment events.

Credit utilization

Credit utilization is the total amount of revolving credit (e.g., a credit card account) that is being used compared to the total credit available. Utilization over 30% can have a negative impact on scores and below 15% can have a strong positive effect.

Length of credit history

The length of credit history is calculated by the average amount of time all open accounts have been open.

The range is as such: >2 years: bad; 2-4 years: poor; 5-6 years: fair; 7-8 years: good; 9+ years: excellent.

New credit (hard inquiries)

New credit shown as hard Inquiries on the credit report could indicate large amounts of recent debt, and a higher possibility of not being able make on-time payments. Hard inquiries usually stay on credit reports for 24 months, though they may only affect the score for 12.


In 2006, Equifax, TransUnion, and Experian partnered to create a scoring algorithm called VantageScore.

VantageScore weighting:

40% Payment history
20% Credit utilization
21% Length of credit history
5% New credit
11% Balances
3% Available credit


300-619 Bad
620-659 Fair
660-719 Good
720-850 Excellent

VantageScore exclusive:


Credit balance is the total amount of debt reported from all accounts.

Available credit

Available credit accounts for how much credit you could access within the next week.

Items NOT used in score calculation

Note that while these items are not used in score calculation, select items may still influence lending decisions by external entities.

Information outside of credit bureau generated report

Race, color, religious affiliation, nationality, gender, or marital status


Occupation, employment history, or job titles (may influence lending decisions but is not part of credit score calculation)

Interest rates of existing accounts

Items reported as child or family support

Rental contracts

Participation in credit counseling

Score types

Educational scores

Most free credit scores online are only educational, and use standard Vantagescore models to generate the number. Most credit cards or banks offer a free educational FICO score as well.

Actual scores: many possible variations

Three separate bureaus, two analytics entities, various scoring versions (e.g., VantageScore versions 1-3) and products tailored to industries (e.g., FICO Auto Score 2, FICO Bankcard Score 8) means that an individual may have potentially hundreds of varying credit scores. These scores are rarely if ever revealed.



When a credit score is viewed for educational or pre-approval purposes (not an application for new credit) it is reported as a soft inquiry. Soft inquiries generally do not influence a credit score.

Only you can see specific soft inquiry events on your report — other external entities do not.


When an institution processes an application for new credit (new credit card, auto loan, etc), viewing the credit report and score is reported as a hard inquiry whether new credit is successfully granted or not. Hard inquiries influence a credit score.


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Research & design by Animagraffs



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