How Are Credit Score Points Calculated?

How Are Credit Score Points Calculated?

Your Creditworthiness

Your credit score serves as your first impression to a lender, as that three-digit number describes your level of risk. The score is calculated by putting the information found in your credit report into a mathematical algorithm or formula that leads to a three-digit number ranging anywhere from 300 to 850. The lower the credit score, the higher your level of risk, and vice versa for a high credit score.

The FICO Scoring System

There are numerous credit-scoring systems. However, the system most commonly used by the three major credit bureaus is the FICO scoring system. The original FICO scoring system was created in 1958, and the acronym stands for the Fair Isaac Corporation. Even though Equifax, Experian and TransUnion, (the three major credit bureaus) all use a credit scoring system created by FICO, each agency calls it by a different name. For example: TransUnion uses Empirica, Equifax uses Beacon Score, and Experian uses the Fair Isaac Risk Model. (See "Resources.")


Five major categories are used to calculate your credit score. The first is your payment history, and it makes up 35 percent of your score. The second category accounts for 30 percent, and it's your credit-to-debt ratio, or utilization. For example, if you have a credit card with a $2,000 limit, and you charged $1,000, your credit-to-debt ratio would be 50 percent, because you have used half of your available credit. The third category is your credit history, which counts for 15 percent. The last two categories account for 10 percent apiece. One is the different types of credit that you have, and the last category is any new credit or credit inquiries.

Credit Scale

Credit scales range from 300 to 850, so every consumer can be provided a score. According to the Fair Isaac Corporation, a credit score ranging from 720 to 850 is considered very good and will get you very low interest rates with your lender. However, most consumers fall between 600 and 800. (See "Resources.")


A more unified scoring system, Vantage Score, was created in March 2006 by the three major credit reporting agencies, Experian, Equifax and TransUnion, as a way to simplify the standardized scoring system. In the past, the three credit bureaus have been criticized for providing significantly different scores for the same consumer, meaning that each system scored the same borrower differently. The new system attempts to alleviate that problem by providing more consistency. It has not caught on as well as the agencies hoped, but it is available for borrowers and lenders.