Are you confused about how credit scores are calculated? If so, you are not the only one. While working as a credit advisor and a financial teacher in my previous experience, I learned that this topic had perplexed most consumers and for a good reason.
Credit scores are not calculated using simple mathematical formulas. Instead, they are calculated using algorithms that weigh a lot of data points, including the duration of your credit history, the amount of debt you owe, and more.
So it makes sense that credit scores are hard to understand. However, there are basic principles that can learn how to help them better understand their scores.
The credit score is your credit history depicted as a number. This is the number of three -digit you can point out to tell if your credit history, as recorded in your credit reports, is usually positive or negative. The more positive a story in your reports, the higher the scores will be.
One useful way to understand credit scores is to imagine you are a student who has just approached the writing task.
Think of your essay as a credit report as this is a document showing the work you do. And the grade you receive is your credit score. If I want to quickly find out how good your writing is, I can just look at your grade or even compare it to the grades of other students.
Like grades, credit scores give you a quick way to assess what is in your credit reports and see how you are doing compared to other users – and they allow lenders and credit card issues to do the same.
Read more: Average credit score by age: How are your scores comparable?
One of the most common misconceptions I have heard that people are repeating about credit scores is that every person has only one score.
The truth is that every person has several credit scores. In addition, there are many options from one of your scores to the other, and your scores may even change every day.
Why do you have so many different scores? Several items are to create a score of scores including:
-
Points calculation company: Several companies calculate credit scores. Fico is the most common scoring model used by most lenders, but Vantagescore is another popular choice.
-
Algorithm: FICO alone offers dozens of different scores that can be used in specific scenarios. For example, there are FICO scores specifically for automatic loan applications.
-
Credit Report: Each credit score is based on only one of your credit reports, but you have three different reports to select (Equifax, Experian or Transunion), and each may contain different information.
-
Assortment of scores: Traditional credit scores use a range of 300 to 850, but some options estimate you from 250 to 990.
This leaves many opportunities to change your credit scores. For this reason, lenders usually want to look at some of your credit points, before confirming you for a big lending solution, such as a new car loan or mortgage.
Credit scores are based on several specific categories specified in your credit reports. When it comes to FICO scores, five categories are included in your calculation.
My experience shows that people often mistakenly think that every factor is equally important, or they record categories that have a minimal impact on their scores. But if you want to create a great credit, you will have to pay more attention to categories with the highest weight.
Here are the breakdown of each of the five categories used to calculate your FICO scores:
The VantageScore categories used to calculate your credit scores are slightly different. However, VantageScore models use the same information as the FICO, but they break it into more specific categories.
Read more: Vantagescore and Fico: How these two main credit rating models are compared
If you expect to improve your credit scores, it is important to know what it is and not included in your scores calculations.
For example, NondeBT accounts are not included in your credit scores unless you use an alternative scoring service such as Experian Boost or TRIVIVISION. These types of accounts do not affect your traditional credit scores unless your payment is overdue and the expense goes to collections:
When it comes to Buy Now, pay later (BNL) loans, the impact of your credit scores varies depending on the company. 2025 After published by After that it will start reporting consumer payment information Experian. On the other hand, using Sezzle, you have to choose to increase if you want your loan to affect your credit. Clarna loans are currently not affected by credit scores.
Credit scores are usually recalculated once a month. However, if you observe your scores, you may notice credit points for more or less. This is because your lenders and credit card companies usually notify your account information every month, but they do not do it the same day. For this reason, you can see the shift of your credit score, even if nothing has changed at your end.