How your credit score is calculated

Source; New York Life

Knowing how your credit score is calculated could save you thousands of dollars.

If, like many people, you don't fully understand how your credit score is calculated, you won't understand how your actions can improve it. Having a good credit score offers multiple benefits, including the potential to qualify for lower interest rates and increase your borrowing power. Here's what you need to know about how your score is determined by FICO, using information from your credit report. 1

Payment history

Your payment history makes up 35 percent of your score. 2 You earn points by doing things like consistently making on-time payments. You lose points by being late on payments and having your accounts go into collection. To improve your score, set up automatic payments for your credit card. If you're struggling to make payments, refinance debt to reduce the minimum monthly cost.

How much you owe

The size of your debt determines another 30 percent of your credit score. 3 It looks both at installment loans and revolving credit. With installment loans, you're rated on how much of the loan you have paid off. With revolving credit, like credit cards or lines of credit, you lose points if you use more than 30 percent of your available credit. 4 That means that if you have a $10,000 credit limit on your card, you should only use $3,000.

Length of credit history

Did you know that 15 percent of your credit score stems from the age of your credit accounts? 5 The older your accounts, the higher your score, since they show a track record of credit use. If you don't have longstanding accounts, you can boost your credit score by becoming an authorized user on someone else's credit card. 6

Types of credit

Since 10 percent of your credit score is based on the diversity of your credit accounts, having a line of credit and other loans will help. 7

Recent credit activity

Conversely, applying for credit cards could hurt your score. 8 Each time a company does a credit check, your credit score goes down.

Loans are different: When shopping for a loan, you have up to 45 days to complete a loan application after receiving a rate, and these inquiries will show up as just one credit inquiry on your report. 9

For additional information about ratings, please contact the three credit rating bureaus.
• www.experian.com
• www.transunion.com
• www.equifax.com

Article is provided for informational purposes only, and its accuracy cannot be guaranteed.

1. "What's in My FICO Scores?" My FICO. https://www. myfico.com/credit-education/whats-in-your-credit-score.

2. "Payment History," My FICO. https://www.myfico.com/credit-education/credit-scores/payment-history.

3. "Amount Owed," My FICO. https://www.myfico.com/credit-education/credit-scores/amount-of-debt.

4. Lindsay Konsko, "How to Calculate Your Credit Utilization Ratio," NerdWallet, February 9, 2019. https://www.nerdwallet.com/blog/finance/how-is≠-credit-utilization-ratio-calculated/

5. “The Importance of Length of Credit History," My FICO.
   https://www.myfico.com/credit-education/credit-scores/length-of-credit-history.

6. "What You Should Know About Becoming an Authorized User on a Credit Card," Credit Karma, October 1, 2019. https://www.creditkarma.com/credit-cards/i/authorized-user-credit-card/

7. "Credit Mix," My FICO. https://www.myfico.com/credit-education/credit-scores/credit-mix.

8. "New Credit," My FICO. https://www.myfico.com/credit-education/credit-scores/new-credit.

9. "Credit Checks: What are Credit Inquiries and How Do They Affect Your FICO Score?" My FICO. https://www.myfico.com/credit-education/credit-reports/credit-checks-and inquires.
   
   Source: New York Life