How is your credit score calculated? The three major credit unions — Equifax, Experian, and TransUnion — all calculate credit scores using a similar combination of factors with some variation on how each bureau weighs each core component.
A numerical representation of your creditworthiness, your credit score reflects how likely you are to repay borrowed money. It’s used by lenders, landlords, and other entities to evaluate your credit risk.
The better your understanding of how your credit score is calculated, the better equipped you’ll be to make informed decisions around maintaining and improving it.
Plus, by keeping track of your score, you’ll be more likely to spot errors or fraudulent activity, which can signal identity theft.
How is your credit score calculated?
The credit bureaus assess your credit using a common set of core components. Your credit score is calculated using a combination of the following factors:
Payment history: Your payment history is the record of you making payments on credit accounts like credit cards, loans, and mortgages. On-time payments positively impact your score, while late payments, defaults, and bankruptcies negatively affect it.
Credit utilization: The ratio of your current credit card balances to your credit limits is your credit utilization rate. Lower utilization rates are better, as they show that you're using a small portion of your available credit.
Length of credit history: The length of time you've had credit accounts, including the age of your oldest account, the age of your newest account, and the average age of all accounts.
Types of credit accounts: The variety of credit accounts you have, such as credit cards, mortgages, auto loans, and retail accounts. A diverse credit mix can positively impact your score.
Recent credit inquiries: The number of recent credit inquiries, also known as “hard pulls,” which occur when you apply for new credit. Multiple recent inquiries can suggest higher risk and may lower your score.
Payment utilization and credit utilization are typically given the most weight, with the other elements making up the balance. Within each category, there may be some variation on how each bureau tracks inquiries and how they weigh individual payments, debts, and types of accounts. Your score with each bureau may also vary because not all creditors or lenders report to all credit bureaus.
What’s not included in your score? Your age, employer, salary, occupation, ethnicity, religion, and marital status are not included in the calculation of your credit score. Your score is only meant to represent how you manage your finances.
What is a good credit score?
The two most common scoring models are the FICO score and the VantageScore.
The FICO Score was developed by the Fair Isaac Corporation and is widely used by lenders. VantageScore was developed by the three major credit bureaus. Both scoring models range from 300 to 850, with higher scores being the most creditworthy:
Excellent: 750-850
Good: 700-749
Fair: 650-699
Poor: 550-649
Very Poor: 300-549
It’s important to have a good credit score
A good credit score can make it easier for you to obtain credit and loans. Lenders and creditors often use credit scores to determine the likelihood that a borrower will pay the debt they owe through loans, credit cards, and mortgages.
A higher credit score could help you access better loan terms or lower interest rates. However, it’s important to note that each lender looks at its own set of factors to assess their risk and there is not “cutoff score” used by all lenders.
Credit scores are typically used in:
Loan approvals: Lenders use credit scores to decide whether to approve loan applications and what interest rates to offer.
Rental applications: Landlords may check your credit score as part of the rental application process.
Insurance premiums: Some insurance companies use credit scores to determine premiums.
Employment applications: Some employers check credit scores as part of the hiring process, particularly for financial or sensitive positions.
How to check your credit score
To get a complete picture of your credit health, it’s a good idea to check your credit reports and scores from all three bureaus regularly. This helps ensure that the information is accurate and up to date across all reporting agencies. You can also note any changes that might indicate fraud.
If you're an Allstate Identity Protection member, we’ll monitor your credit for you and reach out if there’s any changes to your credit history, plus you can regularly check your credit report and score in your online portal.
If you don’t have credit monitoring, you can check your credit score by purchasing it from one of the three major credit bureaus or FICO. Some credit card companies, banks, and loan companies also now provide credit scores to their customers, either on their statement or online once logged into your account. You can get your credit report for free once a week from the website annualcreditreport.com.
We’re here for you
If you check your score and something doesn't seem right, check your credit report, and consider filing a dispute with Equifax, Experian, or TransUnion.
Or, if you're a member and you suspect identity theft, give us a call. Our specialists can walk you through any issue you're experiencing and advise on next steps.
