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How do Credit Bureaus Determine your Credit Score

If you’re like most people, your financial life can sometimes feel complicated and even messy.

With multiple bank accounts and credit cards, personal and student loans, and bills coming from plenty of sources, it can be hard to keep track of the details.

But if your finances seem complex to you, how do those messy details get resolved into a single clean number as your credit score? After all, according to the Consumer Financial Protection Bureau, national credit bureaus receive information about over 200 million consumers from approximately 10,000 lenders. It’s hard to imagine how this information gets transformed into a number that summarizes your credit!

However, understanding your credit score calculation is crucial for your financial health.

The organizations responsible for creating your credit score are the major national credit bureaus: Equifax, Experian, and TransUnion. To calculate your core, they’ll collect information from all of the financial institutions you’re associated with. This can include anywhere you’ve taken out a loan, credit card, or other credit account.

Using this information, the credit bureaus will consider five major factors that affect your credit score, as well as a few additional factors that can help nudge your score up or down. Let’s take a look at the elements that go into your credit score.

Your Payment History

If you’ve ever checked out your credit report, you may have noticed that the record of your past payments takes up a significant amount of space on the pages. This is because your payment history, or information about whether you’ve paid your bills on time, is the most important element factored into your credit score. With all major credit bureaus, payment history makes up around 35% of your credit score.

As you might expect, your payment history includes a wide spectrum of past payment types. It can range from credit card payments to mortgages and car loans.

If you have a solid payment history—that is, if you’ve shown you can be trusted to pay your bills on time—lenders will consider you less of a risk. The opposite is also true, of course: late or missed payments, liens, foreclosures, and bankruptcy can have a negative impact on your credit score.

Fortunately, there’s good news in this area: your payment history is the part of your credit score that you can change with the most ease. The moment you start to pay off past debts, your credit score will start to rise bit by bit.

Your Amounts Owed

This factor is a ratio that compares the amount of debt you have to your credit limits. You may also hear it called the “credit utilization ratio.”

You’ll often see this ratio expressed as a percentage. For example, if you have three credit cards with a credit limit of $2,000 each and a balance of $3,000 across all three, you’re using half of your credit. Thus, your credit utilization ratio is 50%.

In general, it helps to keep your amounts owed low in comparison to your credit limit. Having a credit utilization between under 30% is ideal, in most cases.

Like your payment history, you have a direct influence on this part of your credit score. By considering your credit utilization with care, you can make sure that your credit score remains high.

The Length of Your Credit History

In general, having a longer credit history can help boost your credit score. This is because it helps provide potential lenders with a clearer, more well-rounded picture of your spending habits over a longer period of time. Showing that you have a history as a reliable borrower who repays debts on time can be a great help.

This is why many of today’s parents are choosing to start building their children’s credit at a young age. By allowing children to become authorized users on joint cards, or by educating teenagers in finance and helping them open their own accounts, it’s possible to establish a credit history that can help them later in life.

Otherwise, this is a factor that you have little control over: it’s impossible to go back and add more time to your credit history. If you have relatively new accounts, all you can do is make sure you maintain low debt and on-time payments.

This factor is also why you should consider leaving older or unused credit cards open to maintain a better score.

Your Credit Mix

While most of us in the modern world rely on credit cards above other types of financial lending, it can be helpful to have a mixture of credit types.

Different kinds of accounts can show that you have experience handling a mix of debts and loans. While there’s no ideal mixture of credit types, a blend of installment and revolving credit can help.

For newer borrowers who lack credit history, it may be possible to boost your credit score by opening a variety of account types over time. The “over time” part is key: as we’ll see in the section below, opening too many accounts at once can actually damage your credit score instead of helping.

It’s also worth noting that your credit mix is less significant than the factors above. Lenders are more interested in seeing that you’re a responsible buyer than a mix of credit types in your credit profile.

New or Recent Credit Accounts

It’s true that opening a spectrum of credit types can help boost your credit score. For some consumers, having multiple credit accounts may be necessary, such as when you’re taking out a mortgage in addition to an existing student loan.

However, opening multiple new accounts all at once can damage your credit score. Credit bureaus and lenders consider those applying for several new lines of credit as risky borrowers. The assumption here is that you may be in financial trouble, or that you may be taking on too much debt all at once.

It’s worth noting that it isn’t the account itself that affects your score; it’s the credit inquiry. A credit inquiry is what happens when a potential lender pulls your credit report. This happens each time someone reviews your credit history to consider your credit application.

There are two kinds of inquiries that factor into your credit score: hard and soft.

Hard inquiries are when you apply for credit from a lender. This can include applying for a mortgage, car loan, student loan, or similar form of credit. Hard loans will show up on your credit report for two years, but they’ll only have a negative impact on your score for one year.

Soft inquiries, on the other hand, happen outside of applying for credit. This may occur when you request your annual credit report, for example, or when a potential employer reviews your credit report as part of the job application process. These show up on your credit report, but they won’t affect your credit score.

New credit isn’t as influential as the factors above, but it can still have a negative impact on your credit score over time.

Additional Factors in Your Credit Score Calculation

As mentioned earlier, the five factors above have the most influence on your credit score. However, there are a few additional factors that can nudge your score slightly one way or another.

Rent and Utility Payments

In general, rent and utility payments won’t factor into your credit score. However, this is only true as long as you continue to pay on time.

If you or your landlord report your rent payments, they will factor into your credit score. The same is true of your utility bills. Otherwise, these payments will not show up on your credit score.


Paying taxes on time won’t have any effect on your credit score, but late payments can affect your credit. Missing the deadline could prompt the IRS to file a federal tax lien with the credit bureau. This can have a major negative impact on your credit score.

Find Better Ways to Boost Your Credit Score

As you can see, the way credit bureaus create your credit score calculation can be complicated. Many of the factors involved are things you have little to no immediate control over, which can make it hard to figure out how to boost your credit score. After all, while on-time payments and a good credit utilization ratio can help, they won’t undo the damage from a poor credit history.

That’s where we come in! Our team has a history of providing outstanding results to our clients, boosting their credit scores by helping to remove bad credit. Working with one of our certified credit analysts, you’ll begin to see improvements to your credit score in as little as thirty days.

If you’d like to learn more about what we offer, reach out to us for an initial credit assessment. We’re always happy to answer your questions!

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