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schedule 8 min read | May 5, 2022

How is Your Credit Score Calculated by FICO and VantageScore, Anyway?

Written by CreditFresh

Your credit score is an important number when it comes to your financial health. But it’s not always easy understanding why it is the way it is.

If you’re like a lot of people, you may understand the basics — like how paying your bills on time is a good thing and paying your bills late is bad. Or, you might be like a lot of people and have no idea how your score is determined.

If you have questions about your credit score, don’t be concerned about these money borrowing myths. Stick to the facts and in addition to that, check out this guide on how the major credit scoring models calculate your credit score.

What is a Credit Score?

First, let’s start with the nuts and bolts. A credit score is a three-digit number that represents your behavior as a borrower and may give some indication as to how likely you are to pay back debt. It’s a number that potential lenders, landlords, and even employers may look at to learn more about your borrowing history.

Financial institutions look at your score to predict the odds you’ll pay them back. They may also use it to determine the rates and terms available to you.

Your experience as a borrower is tied to this number. Generally, the higher your score is, the more likely it may be for you to qualify for a loan with lower interest rates and higher credit limits.

What is a FICO Score?

A FICO score is a type of credit score generated using the FICO scoring model. This was developed by the Fair Isaac Corporation and today, FICO is the most popular method used to assess credit risk.

What Are the Different FICO Scores?

Generally, FICO scores range between 300 and 850. Where you fall on this scale determines your rating.

Ratings are like the letter grade that correspond with specific numerical ranges. FICO breaks down its scale into five ratings or categories, as you can see in the table below:

Very Good740–799

What is the Highest Possible FICO Score?

At the peak of the FICO credit scale, 850 is the highest FICO score you can possibly get. This squeaky-clean score can come with some financial advantages. You may be more likely to qualify for a variety of loans. However, financial institutions may not make much of a distinction between scores that fall into the “exceptional” range of 800 to 850, so achieving a score of 850 may not necessarily yield any more benefits than a score of 800.

On the other end, three hundred is the lowest possible number you can get. It may not come with any perks, so it’s not something you want to see on your report. Something this low will likely complicate qualifying for a loan or personal line of credit.

Both 300 and 850 represent the fringe scores of the FICO model, so they aren’t very common. Most people generally fall somewhere in the middle.

How is a FICO Score Calculated?

FICO determines your credit score by looking at the various components of your full credit report. Your full report may contain information reported from financial institutions, utility providers, landlords, and more. This information sums up how you’ve paid bills and used credit.

FICO uses an elaborate algorithm to create a credit score using your history. This process evaluates how you perform in the following five major categories.

1. Payment History

The first and potentially the most influential factor is your payment history, or how well you pay your bills on time. It makes up 35 percent of your overall score.

It takes up such a large percentage because it’s one of the main things your potential financial institutions may want to know. Lenders may prefer seeing a payment history devoid of late payments. That being said, keep in mind that your payment history is just one of many facets of your FICO score.

Some financial products may impact your payment history, including some online lines of credit. Any financial institution that reports your payment activity to one of the major credit bureaus may impact your payment history.

2. Amounts Owed

The next biggest factor that impacts your credit score is your amounts owed, which makes up 30 percent of your score. Amounts owed generally means two things.

First up is your overall debt. Quite literally, it refers to how much debt you have in your name. But keep in mind, owing money on your different credit accounts doesn’t automatically indicate that you have a low credit score and are a high-risk borrower.

Your credit utilization is the second facet of this factor. It applies to revolving credit like credit cards and personal lines of credit — not certain other types of personal loans. These products share more differences than similarities. So if you aren’t sure if a line of credit or another kind of personal loan is the better choice, take some time to learn more about these products before you apply.

Your credit utilization describes the ratio of the credit you’ve used compared to the total credit you have available. Generally, the less of your available credit you use, the better. This shows lenders you aren’t regularly maxing out credit cards or personal lines of credit.

Click here to learn more about your credit utlization ratio and why it’s so important!

3. Length of Credit History

Although it makes up just 15 percent of your score, length of credit is still an influential factor. It helps FICO improve the accuracy of its predictions about your future borrowing behavior.

It’s all about the amount of information in your report. Reports that show older accounts typically have more information in them, giving FICO more insight into the way you handle debt. As a result, depending on various factors, longer histories may sometimes have a positive impact on your score.

4. New Credit

At just 10 percent of your FICO score, new credit is less influential than other factors. This shows how often you open new credit accounts. Opening a number of accounts in quick succession may show that you are a higher risk as a borrower, particularly if you have a short credit history.

Generally, applying for new credit once or twice over the course of a year won’t hurt your credit score much (if at all), but multiple inquiries in a short period of time might. This is why it’s important to try to avoid opening too many accounts in a short amount of time, if you can.

5. Credit Mix

Credit mix refers to the type of accounts you have. FICO prefers to see a variety of loans and lines of credit in your file, provided they’re in good standing.

A varied mix provides more data about your borrowing habits. It gives FICO more information to base their predictions on how you’ll behave when you borrow money in the future. Keep in mind that this doesn’t mean that it’s important for you to attempt to borrow each type of loan out there.

It’s also worth 10 percent, so it’s not as important as payment history or amounts owed.

close up of a man’s left hand holding a pen over a report with a grey calculator

How Often are FICO Scores Updated?

FICO bases its scores on information provided by your financial institutions, utility providers, landlords, and more. Your score is updated when an inquiry is made into your credit report.

However, different institutions will update a credit bureau on different schedules. Before you apply for a credit account of any kind, it’s important to understand how that product works and to know whether your payments are being reported to a credit bureau or not.

A credit report is a snapshot of your finances at the time of the pull, but the number you get is never permanent. It may change as soon as a lender or cell phone provider shares information about your accounts.

What is VantageScore?

FICO may be the most popular scoring model on the market, but it’s not the only one. VantageScore is an alternative credit scoring model launched in 2006 by the three major credit agencies. Equifax, Experian, and TransUnion designed it to eliminate inconsistencies between the reports they generated.

What is VantageScore 3.0?

VantageScore 3.0 is an updated version of the original scoring model that arrived in the market in 2013. It came with sweeping changes that made it easier to generate scores for consumers with thin credit histories.

The most recent update is VantageScore 4.0. Although it debuted in 2017, many financial institutions haven’t made the switch and are still using 3.0 to check scores[1].

What Are the Different VantageScore 3.0 Scores?

The VantageScore 3.0 update also adopted FICO’s scoring range, so your VantageScore will also fall somewhere on a scale of 300 to 850. Although they share the same scale, VantageScore and FICO use different ratings.

Pay close attention to the individual ranges of each rating below. You’ll see there are minor variations from the table above.

Very Poor300–499

How is a VantageScore 3.0 Score Calculated?

VantageScore 3.0 considers the following factors when generating your score.

1. Payment History

This factor functions much like FICO’s. The main difference is its weighting. Payment history takes up a large portion under the VantageScore model at about 40 percent — making paying your bills on time even more important.

2. Age and Type of Credit

The next most influential factor in VantageScore 3.0’s model is the age and type of credit, worth about 21 percent. It’s like a combination of FICO’s length of history and credit mix.

This factor considers how long you’ve had accounts open for and what kinds of accounts you have. Like FICO, VantageScore 3.0 generally rewards consumers that have a varied mix of longstanding accounts, provided they’re in good standing, as this provides the most amount of information.

3. Percent of Credit Used

Credit utilization gets its own category under this scoring model, and it’s worth about 20 percent.

Generally, a lower credit utilization rate will help contribute to a higher credit score. That means the opposite also is true. A high credit utilization rate, which happens when you use up more of your credit limit, may negatively impact your score.

man holding open a chequebook that says debt in left hand and a pen in his right hand

4. Total Balances

This factor about your total credit balances closely mirrors FICO’s amounts owed with one major difference. Since credit utilization is already accounted for in the category above, this factor takes up just about 11 percent.

VantageScore 3.0 looks at the balances you keep on all accounts, including current and delinquent accounts.

5. Recent Credit

This is VantageScore’s version of new credit, but it’s slightly less influential at about 5 percent. It also considers the amount of newly opened accounts.

6. Available Credit

Lastly, making up just about 3 percent of your score, is the credit you have available. This factor has a small impact on your score,  but it is generally advised that you only take out the funds you actually need.

FICO Score vs VantageScore

Although FICO and VantageScore both gauge risk, they go about it in slightly different ways. To recap these differences, check below for a brief overview of each scoring model.

FICO Scores:

CompanyFair Isaac Corporation
Score Range300–850
Ratings Poor, fair, good, very good, and exceptional
FactorsPayment history (35%), amounts owed (30%), length of credit (15%), credit mix (10%), and new credit (10%)

VantageScore 3.0:

CompanyEquifax, Experian, and TransUnion
Score Range300–850
RatingsVery poor, poor, fair, good, and excellent
FactorsPayment history (about 40%), age and type of credit (about 21%), percent of credit used (about 20%), total balance (about 11%), recent credit (about 5%), and credit available (about 3%)
close up of laptop and phone resting on table where a woman is writing in a notebook with a pencil

Hit the Books on Scoring Models

Understanding your credit score may be challenging if you don’t know how it’s generated. But that doesn’t mean there isn’t a rhyme and reason to your credit report. It and your credit score are the products of rules established by FICO and VantageScore.

Now that you know how these scoring models calculate credit score, take what you’ve learned today and apply it to your finances. Focus on the factors that have the biggest impact on your credit score and see how you may improve paying bills on time and reducing your credit utilization.

Disclaimer: This article provides general information only and does not constitute financial, legal, or other professional advice. For full details, see CreditFresh’s Terms of Use.


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