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How Are Credit Scores Calculated?

Andrea Coombes

Written by Andrea Coombes
Fact-checked by Dayana Yochim
Edited by Carolyn Kimball

March 13, 2024

Credit scores are calculated based on several factors, but the two most important are whether you’ve been paying your credit cards and loans on time, and how much you owe.

Quick take: The information on your credit reports, including your payment history and the details of your loans and credit cards, is run through an algorithm to calculate your credit score. There are many different score algorithms, but FICO, creator of the most ubiquitous score, says there are five key elements:

  • 35% of a credit score is based on your payment history
  • 30% on how much you owe
  • 15% on the length of your credit history
  • 10% on new credit
  • 10% on your credit mix

Tell me more! Based on that breakdown, here are tips for achieving the best possible credit score:

  1. Payment history: Pay on time whenever possible, because payment history is the biggest driver of your credit score. Also, recent activity (within the past two years) is weighted more heavily. The more on-time payments you make starting now, the better it is for your credit.
  2. How much you owe: The second biggest driver of your credit score is this: How much of your available credit card limits have you borrowed? Keep that credit utilization ratio below 30%. Consider the ratio both from an overall perspective — all of your credit card balances added together and divided by your total credit limit across all of your cards — as well as card-by-card, and try to keep all of those numbers below 30%. The lower your ratio, the better.
  3. Length of credit history: If possible, keep credit accounts open rather than closing them, because the longer your credit history, the better.
  4. New credit: Opening new credit accounts can lower your credit score, at least in the short term, because lenders see it as a possible sign that you’re hurting for cash. That doesn’t mean you should never open a new account, but be aware that your credit score might get a temporary ding if you do.
  5. Credit mix: Diversifying your credit mix by having installment loans (e.g., a car loan, student loan, credit-builder loan, mortgage) as well as revolving credit (credit cards), can be good for your credit score. But don't make decisions solely for your credit score — consider your overall financial situation too.

One more thing: You have more than one credit score (some studies say we each have 49 scores), because there are many different score algorithms out there. Best policy? Pick one free credit score to monitor. If it's nudging higher over time, it's likely all of your credit scores are going in the same direction. Read how to check your credit score for more.

Bottom line: Paying on time is the single most important thing you can do for your credit score. Even if you’ve got some dings on your credit from the past, focus on paying on time from here on out. Over time, your credit score will go up.

lightbulb Did you know?

You don’t need to carry a credit card balance to improve your credit. I use my credit card all the time, but haven’t carried a credit card balance in decades. My credit score is in the 800s. If possible, pay off your credit card balance early and often. You'll avoid interest charges and build credit. Ta-da!

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About the Editorial Team

Andrea Coombes
Andrea Coombes

Andrea Coombes has 20+ years of experience helping people reach their financial goals. Her personal finance articles have appeared in the Wall Street Journal, USA Today, MarketWatch, Forbes, and other publications, and she's shared her expertise on CBS, NPR, "Marketplace," and more. She's been a financial coach and certified consumer credit counselor, and is working on becoming a Certified Financial Planner. She knows that owning pets isn't necessarily the best financial decision; her dog and two cats would argue this point.

Dayana Yochim
Dayana Yochim

Dayana Yochim has been writing (articles, books, podcasts, stirring speeches) about personal finance and investing for more than two decades, focusing on bringing clarity and the occasional comedic aside to what is often a murky, humorless topic. She’s written for NerdWallet, The Motley Fool,, Woman’s Day, Forbes, Newsweek and others, and been a guest expert on "Today," "Good Morning America," CNN, NPR and wherever they’ll hand her a mic.

Carolyn Kimball
Carolyn Kimball

Carolyn Kimball is Managing Editor for Reink Media Group and the lead editor for content on Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.

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