How Is Your Credit Score Actually Determined?

If you’ve ever tried to rent or buy a home, applied for a credit card, or wanted to get a loan, you’ve probably been asked for your credit score. This financial metric evaluates your history of managing your credit balance to help creditors and landlords better understand your value as a consumer. Many major money-related milestones depend on having “good credit,” but what goes into that number is a bit of a mystery. Rather than thinking of your credit score as just the place where an arrow lands on a meter, it’s good to know about all of the factors that go into that calculation.

What is a Good Credit Score?

Credit scores range from 300 to 850. While the average American’s credit score falls somewhere between 600 and 750, a good score is generally considered to be 700 and higher. A poor credit score falls between 300 and 629, a fair score from 580 to 669, a good score from 670 to 739, and an exceptional score ranges anywhere from 800 to 850. Having a higher credit score has multiple benefits, including access to lower interest rates and greater chances of being able to rent a home.

What Is Factored Into Credit Score

Your credit score — also known as your FICO score — consists of five components with varied percentages of importance. 

• Payment history (35%)

• Amount owed (30%)

• Length of credit history (15%)

• New credit (10%)

• Credit mix (10%)

The two most weighted aspects of credit score are your payment history and the amount owed. The first evaluates whether you are responsible for paying your bills on time, while the second assesses your outstanding credit balance, if any. While it’s reasonable to have a little bit of credit card debt (the average American cardholder has around $5,700), paying your minimums on time is important to preserve the quality of your credit score.

Less important factors include the length of your credit history (how long you’ve had credit cards), new credit (new financial accounts or inquiries into your credit status), and credit mix (the different types of credit you have, including credit cards, mortgage, loans, and more). Lenders and those reviewing your credit are looking for consistency — hanging onto credit for a long time and paying it off. For example, suppose a potential lender or landlord sees you’ve taken out multiple applications for new credit cards while holding balances on others. In that case, that may be considered a financial red flag.

What Isn’t Factored Into Credit Score

Your age, gender, and geography don’t play a part in calculating your credit score, and for the most part, you don’t have to worry about your relationship status. However, if you are applying for an apartment or a loan with a partner, ensuring your two scores' average is sustainable is important. Remember that if you take out a joint credit card with your partner, the credit from that account will be factored into both of your credit scores.

While rent, mortgage, and other types of regular payments are factored into a credit score, there is one monthly payment that isn’t: utilities. Internet, gas, and electricity may be regularly paid through a bank account, but they are not regular contributors to calculating your credit score. However, that doesn’t mean you should slack on payments. Setting up automatic payments can help you keep up with those bills while you focus on building your credit score through other regular payments and financial responsibility.

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